Topic 1: Nature of Business

Question 1

Explain why proprietary companies are commonly called ‘private companies’

Answer 1

They have that nickname since they are ‘private’ as shareholders can only sell their shares to people approved of by the other directors

Question 2

Account why unincorporated business is the most common legal structure for small businesses in Australia

Answer 2

Unincorporated businesses are the most common legal structure for small businesses in Australia as it is cheap and easy to establish

Question 3

Identify what ‘Pty Ltd’ is an abbreviation for

Answer 3

‘Pty Ltd’ is an abbreviation for proprietary limited

Question 4

Identify what businesses would have ‘Pty Ltd’ as an ending

Answer 4

Private companies would have ‘Pty Ltd’ as an ending

Question 5

Identify what ‘Ltd’ is an abbreviation for

Answer 5

‘Ltd’ is an abbreviation for limited

Question 6

Identify what businesses would have ‘Ltd’ as an ending

Answer 6

Public companies would have ‘Ltd’ as an ending

Question 7

Identify what the ending ‘Ltd’ signifies

Answer 7

The ending ‘Ltd’ signifies that the business offers limited liability protection for shareholders

Question 8

Outline the requirements for Australian companies to go public on the ASX exchange

Answer 8

Australian public companies must have:
At least 1 shareholder, with no maximum number
No restrictions on the transfer of shares or raising money from the public by offering shares
To issue a prospectus when selling its shares for the first time
A minimum requirement of three directors (two must live in Australia)
The word ‘Limited’ or ‘Ltd’ in its name
To publish its audited financial accounts each year, its annual report

Question 9

Identify the most suitable legal structures for small and/or micro businesses

Answer 9

The most suitable legal structures are sole trader or partnership

Question 10

Identify the only realistic legal structure for the business owner to maintain complete control

Answer 10

Sole trader

Question 11

Identify how the owner can maintain ownership of their company when it goes public/floats

Answer 11

Once a company floats, ownership will be divided among thousands of small, individual shareholders and a few institutional shareholders → more shares, more ownership. Therefore, if the owner wants to retain ownership and control of the business, they would need to hold more than 50% of all shares sold

Question 12

Account why unincorporated businesses struggle to obtain finance

Answer 12

Unincorporated businesses struggle to obtain finances due to their exposure to risk (unlimited liability) and minimal business assets

Question 13

True or False: To overcome the difficulty of raising finance from banks, the owner decides to sell shares in the business as this guarantees the necessary finance will be obtained

Answer 13

False: This does not guarantee that the necessary finance will be obtained

Question 14

Provide an example of a complementary business for an orthodontist and its effect

Answer 14

A dentist can be a complementary business as they can recommend each, creating partnerships and boosting sales

Question 15

Explain why visibility is not as crucial for a manufacturer

Answer 15

Visibility is not a significant factor in deciding a location for manufacturers as usually, manufacturers do not boost their consumer-base through the sighting of the business and first impressions

Question 16

Identify the factors influencing the owner’s choice of legal structure

Answer 16

The factors include, but are not limited to, size, ownership, and finance

Question 17

Currently, the trend is changing as businesses prefer to downsize their workforce and outsource activities. Account why this may be.

Answer 17

The trend is to downsize one’s workforce since this reduces costs and makes the business less complex and problematic to manage

Question 18

Identify the types of resources a business can use

Answer 18

The resources that businesses can use are human, information, physical, and financial resources

Question 19

Identify the current trend of business hierarchies

Answer 19

Businesses are currently flattening their business hierarchies by removing the middle management

Question 20

Identify the major levels of business hierarchies

Answer 20

Business hierarchies can be classified into the frontline, middle, and top management

Question 21

Outline the advantages of flattening the business hierarchy

Answer 21

The advantages of flattening the business hierarchy are more proactive, make quicker decisions, less paperwork and approval, and makes employees feel more trusted

Question 22

Identify what reflects the business culture

Answer 22

The business culture is reflected in the policies, goals, slogans, and unwritten and unofficial rules

Question 23

Outline the process of bankruptcy

Answer 23

1) The business owner or a creditor applies to a court for a bankruptcy order to be made.
2) The court appoints a representative to collect any money owed to the business, which is then distributed to the creditors along with money raised from selling business (and personal) assets

Question 24

Explain what happens if voluntary administration is a success

Answer 24

If voluntary administration is a success, then normal business trading can continue

Question 25

Explain what happens if voluntary administration is a failure

Answer 25

If voluntary administration is a failure, then the business is liquidated

Question 26

Explain why unincorporated businesses cannot be liquidated

Answer 26

Unincorporated businesses cannot be liquidated since the owner is personally liable for the business’s debts and liquidation is the sale of the business and its assets to pay creditors

Question 27

Identify the types of liquidation

Answer 27

Creditors’ (voluntary) liquidation and Court (involuntary) liquidation

Question 28

List the priorities for distributing surplus funds from liquidation

Answer 28

1. Liquidator’s fees
2. Employee wages and superannuation
3. Employee leave entitlements
4. Employee retrenchment pay
5. Unsecured creditors

Question 29

Compare and contrast turnover and revenue

Answer 29

Revenue is a measure of the profitability of a business. On the other hand, turnover is a measure of the efficiency of a business

Question 30

Identify what sole traders are also known as

Answer 30

Sole traders are also known as sole proprietors