U2: Types of Businesses

Question 1

4 ways to classify a business

Answer 1

1. Size: micro/SOHO, small, medium large
2. Geographical spread: local, national, global
3. Industry sector: primary, secondary, tertiary, quarternary, quinary
4. legal structure, sole trader, partnership, private company, public company, government enterprise

Question 2

Amount of employees for each size

Answer 2

• Micro: fewer than 5 (including ownder)
• Small: 5 to 19
• Medium: 20 to 199
• Large: 200+

Question 3

Local Business

Answer 3

• Only provides goods and services to local area, not outside its area
• Small to medium sized businesses

Question 4

National Business

Answer 4

• Operates across one country
• Increased range of products and geographical spread to develop from local to national

Question 5

Global Business

Answer 5

Referred as:
- international businesses: owned and operated in one country but export their goods and/or services to other countries
- transnational corporations: large businesses that operate in many countries (home base in one country)

Question 6

Why do businesses expand?

Answer 6

1. increase in sales: as products become better known, more people will buy them
2. desire to increase profit: increase in sales leads to further growth
3. increase in market share: as a business becomes more well-known and profitable
4. global consumers: consumers can readily purchase foreign goods and services

Question 7

Primary Sector

Answer 7

• extracts or harvest products from the Earth
• production of raw material and basic foods
• packaging and processing of raw material
• decreased proportion of workers in the primary sector

Question 8

Secondary Sector

Answer 8

• converts raw materials into products for the consumer
• manufacturing, processing, construction etc

Question 9

Tertiary Sector

Answer 9

• provides services to the general population and businesses
• a growing proportion of workers are in this sector

Question 10

Quarternary Sector

Answer 10

• consists of intellectual activities
• e.g. government, culture, libraries, research, education, information technologyQ etc

Question 11

Quinary Sector

Answer 11

• domestic activities, traditionally performed by stay-at-home parents
• not measured by monetary amounts, but is important to the contribution of the economy

Question 13

Classification by Legal Structure

Answer 13

Sole Trader and Partnership
- unincorporated
Company: (Public or Private)
- incorporated

Question 14

Unincorporated business

Answer 14

• haven’t gone through legal steps for incorporation (not companies)
• when owner dies, business dies
• no separate legal existence from owner

Question 15

Incorporated business

Answer 15

• have gone through legal steps to separate from owner
• business continues regardless of what happens to owner
• business exists as own legal entity

Question 16

Sole Trader

Answer 16

• an unincorporated business with one owner
  advantages
• complete control
• less government regulation
• less costly to operate
  disadvantages
• need to carry all losses
• need to perform variety of tasks
• end of business when owner dies

Question 17

Partnership

Answer 17

• an unicorporated business operated between 2-20 owners
• need a partnership agreement
  advantages
• less costly than a company
• shared responsibility and workload
• business can keep going if one partner dies
  disadvantages
• personal unlimited liability
• liability for all debts
• possible disputes

Question 18

Unlimited Liability

Answer 18

• the owner and the business are regarded as the same
• if business sued, owner sued, if business reaches financial difficulties, owner reaches financial difficulties

Question 19

Limited Liability - Public and Private Companies

Answer 19

advantages
- growth potential
- easier to attract public finance
- experienced management (board of directors)
disadvantages
- double taxation (company and personal)
- public disclosure of certain information
- can get too large resulting in inefficiences

Question 20

Private Company (Pty Ltd)

Answer 20

• has between 1-50 owners (shareholders)
• Pty Ltd: propriety (private), limited (liability)
• must be lodged with ASIC
  advantages
• more access to funds
• decision making shared
  disadvantages
• conflict between owners
• less control with more owners

Question 21

Public Company (Ltd)

Answer 21

• at least 1 shareholder (no max)
• business listed on ASX
• owners buy shares and receive dividends of company’s profit
• prospectus must be issued on ASX, approved by ASIC
  advantages
• greater access to funds
• easy to transfer ownership
  disadvantages
• loss of control with many owners
• regulations from ASIC and ASX

Question 22

Government Business Enterprise (GBE)

Answer 22

• government owned and operated businesses
• referred as a public sector business and provide essential community services for a whole city/state/country

Question 23

Incorporated Company

Answer 23

• limited liability
• if business sued your own money is untouched

Question 24

Corporated Company

Answer 24

• unlimited liability (everything your responsibility)
• if business is sued, you are sued