Chapter 2: Types of businesses

Question 1

What are the four main factors to classify a business

Answer 1

size, geographical spread, industry and legal structure

Question 2

How would a business owner determine the size of their business? (quantitative measures)

Answer 2

number of employees, number of owners, market share and legal structure

Question 3

How do you determine the size of a business? (qualitative measures)

Answer 3

does the owner make most decisions?
does the owner provide most of the capital?
how much control does the business have within the market?
is the business independently owned and operated?
is the business locally based?

Question 4

how to determine the size of a business by employee count?

Answer 4

micro business: less than 5
small business: 5-19
medium business: 20-199
large business: 200+

Question 5

define geographical spread

Answer 5

geographical spread is the presence of a business and the range of its products across a suburb, city, state, country or the globe

Question 6

describe a local business

Answer 6

a local business has a very restricted geographical spread; it serves the surrounding area

Question 7

describe a national business

Answer 7

a national business operates within one country - as it expands the domestic market will become too saturated so the business can decide to export and sell its products to other countries

Question 8

describe a global business

Answer 8

aka multinational corporation - a large company that has branches in many countries

Question 9

classification by industry sector - what are the different industries

Answer 9

primary, secondary, tertiary, quaternary and quinary industry

Question 10

outline the diff industries

Answer 10

primary - businesses involved in collection of natural resources
secondary - taking raw materials and turning them into a finished product or semi-finished product
tertiary - services eg retailers, dentists and banks
quaternary - transferring and processing of info and knowledge eg telecoms, computing and finance
quinary - services performed in the home eg childcare, tourism and hospitality

Question 11

classification by legal structure - what are the types of legal structures

Answer 11

sole trader
partnership
private
public

Question 12

define incorporated and unincorporated

Answer 12

incorporated - refers to the process companies go through to become a separate legal entity from owner(s)
ie no matter what happens to owners, the business continues to operate
unincorporated - no separate legal existence from its owner(s)
ie when the owner dies so does the business

Question 13

outline the features of a sole-trader business

Answer 13

a sole trader is owned and operated by one person
features:
- owner provides all finances
- makes all decisions
- takes all responsibility for the operations of the business
- easy to establish
- legal requirement: full name in business name otherwise would need to register
- unlimited liability

Question 14

name at least three advantages and three disadvantages of sole traders

Answer 14

adv:
- low cost of entry and easy to establish
- complete control
- right to keep all profits
- less gov reg
- no tax on profits (only on personal income)

disadv:
- unlimited liability
- burden of management
- need to perform a wide range of tasks
- difficult to raise finance for expansion
- difficult to operate when sick

Question 15

outline the features of a partnership

Answer 15

legal business structure owned and operated by b/w 2-20 owners
features:
- no separate legal entity (unlimited liability)
- can set up without legally binding agreement

Question 16

define a limited partnership

Answer 16

allow one or more partners to contribute financially to the business but take no part in running the business (referred to as a silent or sleeping partner)

Question 17

name at least three adv and disadv of partnership

Answer 17

adv:
- low start-up costs
- shared responsibility and workload
- pooled funds and talents
- minimum gov reg
- no taxes on profits (only on personal income)
disadv:
- personal unlimited liability
- liability for all debts (even before partnership begun)
- possibility of disputes
- difficulty finding a suitable partner
- divided loyalty and authority

Question 18

define unlimited and limited liability

Answer 18

unlimited liability - occurs when the business owner is personally responsible for all the business’s debts

limited liability - a feature of corporate ownership that limits each owner’s financial ability to the amount of money he or she has paid for the business’s shares
- cannot be forced to sell personal assets to pay for debts of the business
- the most a shareholder can lose is the amount they paid for their shares
- this protection doesn’t apply to directors of the company

Question 19

outline the features of private companies

Answer 19

a proprietary (priv) company is an incorporated business and usually has b/w 2-50 priv shareholders
- shares are only offered to ppl that business wishes to have as part-owners. ie shareholders can only sell shares to ppl approved by other directors
- not listed on stock exchange
- must have Ptd Ltd in name
- main adv is that shareholders have limited liability protection

Question 20

outline the features of a public company

Answer 20

The shares are listed on the ASX, and the general public may buy and sell shares
- at least 1 shareholder
- issue prospectus when selling shares for the first time
- Ltd or limited in the name
- publish audited financial accounts every year

Question 21

outline the features of a government enterprise

Answer 21

gov owned and operated
- typically large and some of the largest employers in AUS
- operated by all lvls of gov - fed state local
- eg syd trains, syd water

Question 22

define privatisation

Answer 22

the process of transferring the ownership of a gov business to the private sector

Question 23

what are the factors that influence choice of legal structure

Answer 23

size of business, ownership, finances

these 3 are interrelated and act together

Question 24

define prospectus

Answer 24

a document giving details of a company and inviting the public to buy shares in it

Question 25

define float

Answer 25

raising of capital in a company through the sale of shares to the public

Question 26

how would how much ownership an owner has determine the legal structure?

Answer 26

sole trader - complete ownership
partnership - shared ownership and high degree of control
private - high deg of control and limited liability
public - the more shares the more ownership but if over 50% of shares they in control