Types of Legal Business Structures Flashcards
What is a Sole Trader?
An unincorporated business that is owned by one person. They will require an ABN.
Unlimited liability means the owner is responsible for debts incurred by the business.
What are examples of Sole Traders?
Owner of a hairdressers, freelance tradespeople, freelance photographer.
What are the advantages of being a Sole Trader?
Inexpensive to set up, owner has complete control over decisions, owner can enjoy 100% of profits, no partner conflict.
A healthy work-life balance can be difficult to achieve.
What are the disadvantages of being a Sole Trader?
Unlimited liability, owner supplies most of the capital, can be difficult to raise capital.
What is a Partnership?
An unincorporated business that is owned by between 2 and 20 people.
What are the advantages of a Partnership?
Inexpensive to set up, workload is shared among partners, debts and obligations are shared, easier to raise more capital.
A healthy work-life balance can be achieved.
What are the disadvantages of a Partnership?
Unlimited liability, profits are shared among partners, disagreements and conflict can occur, can be difficult to remove a partner.
All partners are liable for the actions of each partner.
What is a Private Limited Company?
An incorporated business owned by 1 to 50 non-employee shareholders, requiring one director and one shareholder. Shares are sold privately.
Examples: Visy, 7-Eleven, Cotton On
What are the advantages of a Private Limited Company?
- Limited liability
- Capital can be raised by offering more shares
- Pay company tax rate rather than income tax rate
What are the disadvantages of a Private Limited Company?
- More expensive to set up
- More reporting requirements to ASIC and shareholders
- Restricted number of shareholders
- Shares cannot be sold freely
What is a Public Listed Company?
An incorporated business owned by a minimum of one shareholder with no maximum limit on shareholders. Shares are available to the public.
Examples: Commonwealth Bank, Qantas, Dominos
What are the advantages of a Public Listed Company?
- Limited liability
- No limit on shareholders allows for large amount of capital
- Pay company tax rate rather than income tax rate
What are the disadvantages of a Public Listed Company?
- More expensive to set up
- Large reporting requirements
- Loss of control over who owns shares
- Financial performance is open for public scrutiny
What is a social enterprise?
A business that exists to primarily fulfill a social need that benefits the public or community, rather than shareholders. May have an objective to make a profit, but this profit will be reinvested back into the business.
Examples of social enterprises?
Who Gives a Crap, Thankyou, The Big Issue
Advantages of social enterprises?
Can open up new markets by fulfilling a social need. Meeting a social need can have a positive impact on reputation, profit, and market share.
Disadvantages of social enterprises?
Difficulty in obtaining capital to start. Can be difficult to focus on social and financial objectives.
What is a government business enterprise (GBE)?
A business that is government owned and operated, running like companies with a board of directors and a shareholder (government).
Examples of government business enterprises?
Australia Post, Vic Roads, NBN Co
Advantages of government business enterprises?
Can operate with some independence from government. Provision of healthy competition to businesses operating in the private sector.
Disadvantages of government business enterprises?
Political interference, excessive regulation, and changing governments can provide instability.
