types of businesses Flashcards
define sole trade
a sole trader is a business where one person has complete ownership and makes all of the decisions for the business, therefore keeps all of the net profits.
sole trader characteristics
- the business and the owner have the same legal entity.
- the owner has unlimited liability
- must have an ABN
sole trader advantages
- simple and inexpensive to set up
- owner has complete control
- no dispute with partners
- less government regulation
- the owner keeps all net profits
sole trader disadvantages
- unlimited liability
- more difficult to gain finance
- take 100% responsibility and financial risk
- heavy reliance on owner’s skills
define partnership
a partnership is where there are two or more owners of a business. Most partnerships have a maximum of 20 owners.
partnership example
coastal plastic surgery
partnerships allowed more owners
- medical practitioners 50
- chemists 100
- accountants 400
partnership characteristics
- owners have unlimited liability
- may have silent owners
- can have official partnership agreements to minimize disputes between partners.
what is a silent owner
contributes financially but has no part in managing the business
partnership advantages
- simple and inexpensive to set up
- workload can be shared
- greater pool of experience
- financial risk is shared
partnership disadvantages
- unlimited liability
- profits are divided among partners
- potential for disagreements between partners
- may be difficult to remove a partner
define private limited company
They have at least one shareholder and a maximum of 50 non-employee shareholders. These companies also require a minimum of 1 director.
private limited company characteristics
- must have at least 1 director, who makes decisions on behalf of shareholders
- shares cannot be freely sold or traded to the public
- a private company will have ‘Pty. Ltd.’ at the end of it’s name
private limited company advantages
- limited liability for shareholders
- potentially a greater ability to raise capital
- potential tax benefits
- perpetuity
private limited company disadvantages
-more complex and expensive to establish
-more reporting requirements to owners and government
-shares cannot be freely traded
-less liquidity for shareholders compared to public companies
define public listed company
these companies’ shares are listed on a public exchange, and the general public may buy and sell shares of this type of company. These companies have no maximum amount of shareholders.
public listed company characteristics
- listed on a public exchange
- shares can be freely traded to the public
- IPO- initial public offering is when a company first lists on an exchange
public listed company advantages
-limited liability for shareholders
-greater ability to raise capital through the sale of shares
-perpetuity
-greater liquidity for shareholders
public listed company disadvantages
-very complex and expensive to establish
-greater reporting requirements
-no control over who buys shares
define social enterprise
A business that produces goods and services for the market, but operates with the primary objective of fulfilling social needs.
Most (but not all) profit made will be reinvested into the company or a cause.
social enterprise characteristics
- primary aim to address and improve a social or community cause
- profits are primarily used towards the social issue they are aiming to improve.
- some social enterprises may rely on government grants or other donations.
social enterprise advantages
-may attract customers due to their belief in the cause
-can improve employee morale as the employees are contributing to a worthy cause
social enterprise disadvantages
-difficult to focus on profits while also focusing on the social cause
-may need to constantly work with light budgets, making it more difficult to compete
define GBE
a type of business that is government-owned and operated. Like companies, GBEs participate in commercial activities to make a profit.
