Different types of buisnesses Flashcards
what is a sole trader?
A person who owns and runs a business provides all finance for the business
The business owner and the business regarded as the same legal entity
advantages: sole trader
- easy to establish
- the only legal requirement is for the business owner to come up with a name for the business (it must be registered on the ASIC - Australian Securities and Investments Commission). - The only exception is if the name of the business is the same as the business owner’s name.
disadvantage: sole trader
- unlimited liability - business owners who are legally liable for any debt their business might accrue
- a sole trader is the same legal entity as the business (This means if the business is sued, the business owner is sued
If the business experiences financial difficulties, then it is the owner’s financial problem) - when the owner dies, the business dies
what is a partnership?
a partnership is owned by 2 or more people (max 20 partners) - exceptions for medical practitioners, stockbrokers
partners and the business are regarded as the same legal entity.
partnerships have their own tax file number. when a tax return is made, after being processed, the tax return is divided among the partners
what is a limited partnership?
A partner who contributed financial assistance to a business but does not take any part in running the partnership. This is known as a silent or sleeping partner
advantages: partnership
- Low start-up costs
- Less costly to operate than a company
- Shared responsibility and workload between partners
- The business continues despite if one of the partners dies
disadvantages: partnership
-Personal unlimited liability
-Liable for all debts – including partner debts
-Possibility of disputes
-Difficulty in finding a suitable partner
what is a private limited company? Pty Ltd
-Most common type of company
-Must have at least 1 shareholder and a maximum of 50 non-employee shareholders (members who aren’t employees of the company)
-A private limited company MUST have a director, therefore it is quite easy for a privately listed company to be owned by a singular shareholder who is also the director
-Tend to be small to medium-sized, family-owned businesses
-Shareholders can sell their shares to only people who are approved by the other directors
Advantages: Pty Ltd
-Easier to attract finance (separate bank accounts with separate entities)
-Limited liability (separate legal entity)
-Company tax is lower than personal income
disadvantages: Pty Ltd
-Cost of formation (more expensive than either a sole trader or a partnership)
-The company is taxed on any profits and dividends, and the income from the company to the shareholder is taxed as personal income.
-Personal liability for business debts IF directors knew that debts could be paid
-Public disclosure – reporting of certain information (ask mr plumb which ones)
-Rapid growth may lead to inefficiencies
What is a publicly listed company?
The shares of a publicly listed company are listed on the ASE (Australian Securities Exchange) and the general public may buy or sell shares in this type of company. Most publicly listed companies tend to be large in size and market a large range of products e.g. Telstra, BHP, Woolworths, Virgin Australia and Westpac.
What things does a publicly listed company have?
-A minimum of one shareholder with no maximum number
-No restriction of the transfer of shares or raising money from the public via share offers
-Requirements to provide certain information when selling shares for the first time
-The word ‘limited’ or ‘ltd’ in its name
-Requirements to publish its audited financial accounts each year included in an annual report
advantages and disadvantages of a publicly listed company
Much the same as a privately listed company, however:
ADVANTAGE: Publicly listed companies can attract extra capital by issuing shares on the share market. This means there is greater potential for growth
DISADVANTAGE: A publicly listed company is a highly complex business structure requiring greater accountability and compliance than a privately listed company.
what is a social enterprise?
Is a business that produces goods and services for the market but operates with the primary objective of fulfilling a social need. The business may make a profit but will concentrate on some community or environmental needs.
where do social enterprises prioritise there money towards?
A large majority of the business profits will be reinvested back into the business so that the business can continue to fulfil the social need Of the community. OR profits will be distributed to meet the community or environmental need.
where do some social enterprises receive financial funding from?
Many social enterprises will obtain money from the government yo support their social goal
why do social enterprises exist?
To benefit society, rather than for the pursuit of profit.
examples of social needs that social enterprises may try and fulfil
-Providing opportunities for local unemployed people
-Developing skills, and providing vocational training or lifelong learning opportunities for disadvantaged people in the community.
-Creating accessibility to a better quality of life for disadvantaged members of the community
advantages: social enterprise
-Can open up new markets – may meet a need that commercial businesses choose not to meet
disadvantages: social enterpise
-Difficulty in obtaining capital to start the business – can be hard to finance
-Significant operating costs – social enterprises will often take on costs that conventional/commercial businesses would not
-Can be difficult to focus on both social and financial objectives
what is a government business enterprise?
-Also known as GBE is a type of business that is government-owned and operated
-Participate In commercial activities with the goal of MAKING A PROFIT
-Carry out government policies while they diver community services
-Operate on both a federal and state level
-Typically big businesses that employ many people (some of the largest employers in Australia are GBEs)
examples of: government business enterprises
Australia Post, VicRoads
what is the aim of a GBE?
Is to increase the value of their assets and returns to their shareholder (the government)
advantages: GBE
-Able to carry out government policies delivering community services in areas where private sector businesses might hesitate to invest
-Can operate with some independence from the government
disadvantages of a GBE
-Political interference in the day-to-day operation of the GBE
-Inefficiencies caused by government ‘red tape’ – excessive regulation and rules and rigid conformity
-There can be less accountability within a GBE resulting in less productivity
what is incorporation?
Processes businesses go through to become a registered company and a separate legal entity from its owner/shareholder
In Australia who is in charge of administration for the registering of a business?
ASIC - Australian, securities, and investments commission
once a business has become incorporated what are they entitled to?
they are given a company number known as a ACN (Australian company number)
what is the purpose of a ACN
the unique number is used to identify the companies activities
when a business is a separate legal entity what are the partners referred to as:
Shareholders
advantages: to becoming a incorporated business
brings shareholders limited liability (due to the business being a separate legal entity - shareholders are only liable for what the partner has invested into the business
what are the different types of buisness objectives?
- to increase market share
- to improve effectiveness
- to fulfil a social need
- to meet shareholder expectations
business objective: to make a profit
profit is what is left over once all buisess expenses have been deducts from money earned from sales (revenue). A loss occurs when expenses exceed the revenue. profit is a major indicator for a businesses success and can be easy to visualise in a pie chart
business objective: to increase market share
what is a market share? Businesses’ proportions of total sales in a market or an industry.
How to visualise a business’s market share? using a pie chart showing the % of sales the business has made in relation to all of its competitors. small, medium-sized business tend to measure against other local businesses
example of a small business increasing its market share:
a suburban shopping centure may contain four compeitng cafes. each will be trying to increase there market share aggainst the other three local competitors by offering better-quality food and drink, better service and or maybe cheaper prices.
example of market share expansion for large buisnesses
often competing for increased market share on a national, Australia wide basis. e,g, often businesses develop an extensive product range using different brand names to gain extra view % points on the market share
business objective: to improve efficiency
how well a business uses resources to achieve objectives in order to sell a product or provide a service to customers a business will use resources (inputs) to produce the product or service (output). A business will use these resources efficiently - minimising the resources used in order to maximise outputs generated from those inputs.
how can efficiency be improved? business objective
using up-to-date technology
innovative processes
highly skilled employees
using the best quality components for the product so waste and inefficiencies are reduced
business objective: to fulfil a market need
for many business, their purpose is to fulfil some sort of market need e.g. a business may exist to meet customer expectations or provide a good or service that is not otherwise available on the market.
business objective: to meet shareholder expectations
making a profit is the primary objective for many businesses. this is particularly important for investors in a company - shareholders
example: shareholders expect to make a return on their investments. They expect the business they have invested into make a profit, as they receive a proportion of the profits (dividends) if the company’s shares increase then the shareholders will have their expectations met.
