NATURE OF BUSINESS: Types of Businesses

Question 1

Classification of Business size: SMALL
- characteristics

Answer 1

CHARACTERISTICS:
<20 employees
Independently owned and operated by 1 or 2 people
Sole trader/ partnership
Owner responsible for all decisions

SOURCE OF FINANCE:
Equity finance (owner own savings/funds raised by own owner)
Debt finance (obtained from financial institutions; loan)

Question 2

Classification of Business size: MEDIUM

Answer 2

CHARACTERISTICS:

20- 199 employees
Owned and operated by a few people and/or private shareholders
Partnership/ private company
Owner responsible for majority of decision making

SOURCE OF FINANCE:

Owners/partners own savings or a loan and/or private shareholders
Equity and debt finance

Question 3

Classification of Business size: LARGE

Answer 3

CHARACTERISTICS:
200 + employees
Owner by thousands of owners (franchise)
Public company
Complex decision making due to division of responsibilities and layers of management.

SOURCE OF FINANCE:

cash reserves
retained profit
sale of shares
loans from domestic and overseas institutions

Question 4

Local business

Answer 4

within immediate environment, limited geographical spread / reach
- Often reflect the local environment in terms of needs/tastes.

Question 5

National business

Answer 5

Operating within a country, present in several towns
- Confined to National laws and regulations

Question 6

Global business

Answer 6

• alsomultinational corporation
• more than one country, engaged in global business
• confined by international legal and trade restrictions

Question 7

Business industry: Primary

Answer 7

businesses involved in collection of natural resources

Question 8

Business industry: Secondary

Answer 8

all manufacturing + construction, transforming raw materials and turning it into a finished or semi-finished product

Question 9

Business industry: Tertiary

Answer 9

Services, selling, distributing goods (rather than making them)
- provides functions that allow primary and secondary to function

QUATERNARY INDUSTRY: related to the transfer and processing of information

QUINARY INDSUTRY: Domestic Services - household services

Question 10

what is legal structure

Answer 10

Definition: Business ownership structure or business form.

Question 11

what are the types of legal structure?

Answer 11

Unincorporated business
Incorporated business
Sole trader
Partnership
Private and Public company
Government enterprise

Question 12

unincorporated businesses

Answer 12

Sole trader
Partnership

Question 13

incorporated businesses

Answer 13

Private company (Proprietary - pty ltd.)
Public company (Ltd.)

Question 14

what is incorporated

Answer 14

• separate legal entity from the owner/s. Exists in its own right legally, financially
• Regardless of what happens to individual owners (shareholders) of the company, business continues to operate
• LIMITED LIABILITY: the most money a shareholder can lose is the amount they paid for their shares.
• If the company goes into liquidation, shareholders cannot be forced to sell their personal assets to pay for the debts of the business

Question 15

what is unincorporated

Answer 15

• Does not exist separately from its owners
• owner/s are responsible for all aspects of the business
  UNLIMITED LIABILITY: If business went into liquidation, owner would pay the debt or if not able to - sell their personal assets to pay back the debt

Question 16

advantages and disadvantages of incorporated

Answer 16

adv: limited liability
dis: additional costs - more expensive

Question 17

advantages and disadvantages of unincorporated

Answer 17

adv: cheapest to establish
dis: unlimited liability

Question 18

what is sole trader

Answer 18

owned and operated by a single person
only requirements are to register business name
have appropriate qualifications/ certifications
adv: simplest, cheapest to set up, make all own decisions
dis: insufficient capital, more workload

Question 19

what is partnership

Answer 19

2 or more people operating business,
NOT legally separate from owners = unlimited liability
adv: extra capital to start,
more staff,
shared responsibilities
dis: not agree on certain decisions, unlimited liability , profts shared

Question 20

what is private company

Answer 20

pty ltd
- Private shareholders
- controlled by a board who generally know each other
- LIMITED LIABILITY
- liquidator manages the sale of the business
adv: limited liability
dis: higher administration costs, limited control over decisions

Question 21

what is public company

Answer 21

• Listed on stock exchange, shares purchasable by public.
• Controlled by board of executives
• LIMITED LIABILITY
• publishes annual financial report
  adv: raise capital through selling shares, high borrowing capacity
  dis: more legal requirements, details kept in public domain - transparency

Question 22

what is government entreprise

Answer 22

• Owned/ operated through government
• relatively small in number
• employ lot of people
• play vital role in the functioning of society (healthcare, train services etc)

Question 23

factors influencing choice of legal structure

Answer 23

Size of the business - start small then grow

Ownership type - depends on reasons for starting the business

Finances - Initial availability and requirement of funds, access to new funds over time. Might include: loans, utilising cash flow or offering investments through shares