NATURE OF BUSINESS: Types of Businesses Flashcards
Classification of Business size: SMALL
- characteristics
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)
Classification of Business size: MEDIUM
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
Classification of Business size: LARGE
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
Local business
within immediate environment, limited geographical spread / reach
- Often reflect the local environment in terms of needs/tastes.
National business
Operating within a country, present in several towns
- Confined to National laws and regulations
Global business
- alsomultinational corporation
- more than one country, engaged in global business
- confined by international legal and trade restrictions
Business industry: Primary
businesses involved in collection of natural resources
Business industry: Secondary
all manufacturing + construction, transforming raw materials and turning it into a finished or semi-finished product
Business industry: Tertiary
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
what is legal structure
Definition: Business ownership structure or business form.
what are the types of legal structure?
Unincorporated business
Incorporated business
Sole trader
Partnership
Private and Public company
Government enterprise
unincorporated businesses
Sole trader
Partnership
incorporated businesses
Private company (Proprietary - pty ltd.)
Public company (Ltd.)
what is incorporated
- 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
what is unincorporated
- 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
advantages and disadvantages of incorporated
adv: limited liability
dis: additional costs - more expensive
advantages and disadvantages of unincorporated
adv: cheapest to establish
dis: unlimited liability
what is sole trader
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
what is partnership
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
what is private company
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
what is public company
- 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
what is government entreprise
- Owned/ operated through government
- relatively small in number
- employ lot of people
- play vital role in the functioning of society (healthcare, train services etc)
factors influencing choice of legal structure
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
