Revision 1 Flashcards
Trading business
Buys and sells inventory. Inventory consists of products purchased by a business with the intention of re-selling these products at a profit
Manufacturing business
Converts raw materials into finished products
Two types of trading businesses
Retailer- business sells inventory to public
Wholesaler- purchase inventory from manufacturer and sells the inventory to a retailer
Service business
Provides a service to a customer in exchange for a fee
Sole trader
Business owned by one man or woman. Can for example run a deli, operate business as a plumber, accountant, watch repairer
Advantages of being a sole trader
Easier and less expensive to establish
Does not have to share profit with other owners
Disadvantages of being a sole trader
Liable for all debts of the business
One person may not have enough money to start or expand a business
Limited sources of advice when making business decisions
Business may have to close or be sold if sole trader has a serious illness
Any losses made by business cannot be shared with other owners
More difficult to take annual holidays
Partnership
Business, other than a company, that is owned by tow or more people. Number of members limited by law, max -20
Advantages of a partnership
May be able to raise more capital than sole trader
Contribute different skills to business
Share the workload of operating a business
One partner can cover for another partner who is sick or on holidays
Share the risks and losses of business
Disadvantages of a partnership
Jointly and severally liable for debts
Conflict over business policy or personality clashes can occur. Serious enough to end a partnership
Has a limited life
Profit must be shared between a number of people
Partnership agreement
Important features of the partnership. Partnership agreement includes:
Aims of the partnership
Profit or loss sharing ratio
Voting procedures at meetings of partners
Procedure to be followed in event of retirement or death of a partner, procedure for admission of new partner
Corporations act 2001 (commonwealth)
All aspects of company formation and certain aspects of company operation are controlled by an act of the commonwealth parliament known as the corporations act 2001
Company
Is an organisation established under the corporations act 2001 as a separate legal entity. Can make contracts in its own name, can own property, sue and be sued in own name
Capital of a company
The money or other resources that a person invests in a business, is known as capital. Capital of a company is divided into parts known as shares. Each share given a money value. People purchase these shares and become the owners of the company known as share holders
Company limited by shares
The liability of the shareholders for company debts is limited to the amount owing on their shares
Proprietary company
Company that cannot raise money form the public. Have at least 1 shareholder and max 50 non employees. Must have word proprietary or pty included in name