U2: Types of Businesses Flashcards
4 ways to classify a business
- Size: micro/SOHO, small, medium large
- Geographical spread: local, national, global
- Industry sector: primary, secondary, tertiary, quarternary, quinary
- legal structure, sole trader, partnership, private company, public company, government enterprise
Amount of employees for each size
- Micro: fewer than 5 (including ownder)
- Small: 5 to 19
- Medium: 20 to 199
- Large: 200+
Local Business
- Only provides goods and services to local area, not outside its area
- Small to medium sized businesses
National Business
- Operates across one country
- Increased range of products and geographical spread to develop from local to national
Global Business
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)
Why do businesses expand?
- increase in sales: as products become better known, more people will buy them
- desire to increase profit: increase in sales leads to further growth
- increase in market share: as a business becomes more well-known and profitable
- global consumers: consumers can readily purchase foreign goods and services
Primary Sector
- 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
Secondary Sector
- converts raw materials into products for the consumer
- manufacturing, processing, construction etc
Tertiary Sector
- provides services to the general population and businesses
- a growing proportion of workers are in this sector
Quarternary Sector
- consists of intellectual activities
- e.g. government, culture, libraries, research, education, information technologyQ etc
Quinary Sector
- domestic activities, traditionally performed by stay-at-home parents
- not measured by monetary amounts, but is important to the contribution of the economy
Classification by Legal Structure
Sole Trader and Partnership
- unincorporated
Company: (Public or Private)
- incorporated
Unincorporated business
- haven’t gone through legal steps for incorporation (not companies)
- when owner dies, business dies
- no separate legal existence from owner
Incorporated business
- have gone through legal steps to separate from owner
- business continues regardless of what happens to owner
- business exists as own legal entity
Sole Trader
- 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
Partnership
- 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
Unlimited Liability
- the owner and the business are regarded as the same
- if business sued, owner sued, if business reaches financial difficulties, owner reaches financial difficulties
Limited Liability - Public and Private Companies
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
Private Company (Pty Ltd)
- 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
Public Company (Ltd)
- 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
Government Business Enterprise (GBE)
- government owned and operated businesses
- referred as a public sector business and provide essential community services for a whole city/state/country
Incorporated Company
- limited liability
- if business sued your own money is untouched
Corporated Company
- unlimited liability (everything your responsibility)
- if business is sued, you are sued
