Nature of a business: types of businesses Flashcards
how can a business be classified?
Size
Geographical spread
Industry sector
Legal structure
sizes of businesses
micro business
- A business that operates on a very small scale.
- A micro business employs fewer than five people (including the owner).
Small
fewer than 20 employees
medium
20-199 employees
large
200+ employees
what is geographical spread
Geographical spread is the presence of a business and the range of its products across a suburb, city, state or country or the globe.
types of geographical spreads
Local – operate and sell to a small geographical region within Australia
pottery green
National – operate and sell throughout Australia but within national boundary
Woolworths, coles
Global –a large company that has branches in many different countries. For such companies, national borders do not represent trade barriers.
apple, Maccas
what are the industry sectors?
(PS - TQQ)
Primary
Secondary
Tertiary
Quaternary
Quinary
primary sector
Primary industry – involved in the growing, harvesting and extracting of raw materials.
Examples of these businesses include all types of farming, mining, fishing, grazing and forestry
secondary sector
Secondary industry – processing of raw materials into finished products
examples
Car manufacturers
tertiary sector
Tertiary industry – provision of services
(account for 75% of Australian economy).
Examples
retailers, banks, health workers
quaternary sector
Quaternary – focus on providing information services (transfer and processing of information and knowledge)
Examples:
telecommunication, property, computing, finance and education
quinary
Quinary – focus on providing domestic services (services that have traditionally been performed in the home).
Examples
hospitality, tourism, craft-based activities and childcare
legal structures
sole trader
partnership
private company
public company
what is a sole trader?
Are people who operate businesses on their own.
Receive all the profits and bear all the losses.
-Are responsible for everything
Own businesses which are the most common form of business, simple structure, low start-up costs
Have unlimited liability which means that personal assets may be used to repay business debts.
-The business is not a separate legal entity, it is unincorporated
advantages of being a sole trader
low cost of entry
simplest form
complete control
less costly to operate
no partner disputes
owners right to keep all profits
no tax on profits only personal income
disadvantages of being a sole trader
personal (unlimited) liability for business debts
end of the business when the owner dies
difficult to operate if sick
burden of management
need to carry all losses
need to perform a wide variety of tasks
what is partnership
are businesses which have 2 or more owners.
Are relatively easy and cheap to establish.
Have unlimited liability.
Allow the sharing of business responsibilities.
Share all the profits and losses with partners.
Allows each partner to specialise in an area in which they have a particular skill.
advantages of partnership
low start-up costs
shared responsibility and workload
on death of one partner, a business can keep going
pooled funds and talent
no taxes on business profit, only personal income
disadvantages of partnership
personal unlimited liability
possibility for disputes
difficulty in finding suitable partner
what is a company?
Become incorporated.
Have limited liability which means they are separate legal entities to their owners.
Can sue and be sued in their own legal name.
Do not cease to exist if one of the owners dies.
Have perpetual succession.
advantages of a company
easier to attract the public
limited liability
perpetual seccession
disadvantages of a company
cost of formation
double taxation
what is a public company?
Public Companies are separate legal entities that can:
Own property in their own name.
Be liable for tax.
Sue and be sued.
Sell shares on the Australian Stock Exchange.
Attract shareholders by issuing a document known as a prospectus.
Distribute company profits through dividends.
Have limited liability.
Have perpetual succession.
Pay tax on the profits they make.
what is a private company?
Are also known as Proprietary Limited companies.
Are the most common form of companies.
Have part owners called shareholders.
Have between 2 – 50 owners
Distribute profits to shareholders via dividends.
Allow for shares to be bought and sold without disrupting the day-to-day operations of the company.
Have perpetual succession.
Have relatively high start-up costs.
Cannot sell shares on the Australian stock exchange
franchise
A franchise agreement allows an investor to buy an existing business’ name and distribute goods and services
Franchisor – a business allowing investors to use its name and products
Franchisee – business buying the rights to use the name and products
advantages of franchise
Established business name
Existing customer base
Existing product range
Proven business model
Initial start-up support provided
disadvantage of franchise
Expensive to buy into
Must pay a portion of profits to franchisor
Hard to make changes to goods and services
Business can be taken from you if you do not follow the franchise agreement
what is unlimited liability?
the personal assets of the individual are at risk if the business experiences financial difficulties
(if the business is in a partnership then the debts will have to be paid meaning they may not be fairly split)
what is limited liability
this means that the personal assets are NOT at risk if the business experiences financial difficulties
(the business will go bankrupt not the owner)
