Topic 1: Nature of Business Flashcards
Explain why proprietary companies are commonly called ‘private companies’
They have that nickname since they are ‘private’ as shareholders can only sell their shares to people approved of by the other directors
Account why unincorporated business is the most common legal structure for small businesses in Australia
Unincorporated businesses are the most common legal structure for small businesses in Australia as it is cheap and easy to establish
Identify what ‘Pty Ltd’ is an abbreviation for
‘Pty Ltd’ is an abbreviation for proprietary limited
Identify what businesses would have ‘Pty Ltd’ as an ending
Private companies would have ‘Pty Ltd’ as an ending
Identify what ‘Ltd’ is an abbreviation for
‘Ltd’ is an abbreviation for limited
Identify what businesses would have ‘Ltd’ as an ending
Public companies would have ‘Ltd’ as an ending
Identify what the ending ‘Ltd’ signifies
The ending ‘Ltd’ signifies that the business offers limited liability protection for shareholders
Outline the requirements for Australian companies to go public on the ASX exchange
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
Identify the most suitable legal structures for small and/or micro businesses
The most suitable legal structures are sole trader or partnership
Identify the only realistic legal structure for the business owner to maintain complete control
Sole trader
Identify how the owner can maintain ownership of their company when it goes public/floats
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
Account why unincorporated businesses struggle to obtain finance
Unincorporated businesses struggle to obtain finances due to their exposure to risk (unlimited liability) and minimal business assets
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
False: This does not guarantee that the necessary finance will be obtained
Provide an example of a complementary business for an orthodontist and its effect
A dentist can be a complementary business as they can recommend each, creating partnerships and boosting sales
Explain why visibility is not as crucial for a manufacturer
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
Identify the factors influencing the owner’s choice of legal structure
The factors include, but are not limited to, size, ownership, and finance
Currently, the trend is changing as businesses prefer to downsize their workforce and outsource activities. Account why this may be.
The trend is to downsize one’s workforce since this reduces costs and makes the business less complex and problematic to manage
Identify the types of resources a business can use
The resources that businesses can use are human, information, physical, and financial resources
Identify the current trend of business hierarchies
Businesses are currently flattening their business hierarchies by removing the middle management
Identify the major levels of business hierarchies
Business hierarchies can be classified into the frontline, middle, and top management
Outline the advantages of flattening the business hierarchy
The advantages of flattening the business hierarchy are more proactive, make quicker decisions, less paperwork and approval, and makes employees feel more trusted
Identify what reflects the business culture
The business culture is reflected in the policies, goals, slogans, and unwritten and unofficial rules
Outline the process of bankruptcy
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
Explain what happens if voluntary administration is a success
If voluntary administration is a success, then normal business trading can continue
Explain what happens if voluntary administration is a failure
If voluntary administration is a failure, then the business is liquidated
Explain why unincorporated businesses cannot be liquidated
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
Identify the types of liquidation
Creditors’ (voluntary) liquidation and Court (involuntary) liquidation
List the priorities for distributing surplus funds from liquidation
- Liquidator’s fees
- Employee wages and superannuation
- Employee leave entitlements
- Employee retrenchment pay
- Unsecured creditors
Compare and contrast turnover and revenue
Revenue is a measure of the profitability of a business. On the other hand, turnover is a measure of the efficiency of a business
Identify what sole traders are also known as
Sole traders are also known as sole proprietors
