U3 AOS1 Flashcards
state the business types
sole trader
partnership
private limited company
public listed company
social enterprise
government business enterprise
state the unincorporated business types
sole trader and partnership
state the incorporated business types
private limited company and public listed company
define and describe sole trader
a business owned and operated by one person
- provides all the finance
- makes all the decisions
- responsible for the operations of the business
sole trader (amount, profit, establishment and legal requirements)
amount
small
one owner and less than 20 employees
profit
returned to the owner
establishment and legal requirements
required to register business name with ASIC, only if the business name is different to the owner’s name
pays tax using personal tax number
explain unlimited liability in relation to a sole trader/partnership
when the business owner/s are personally responsible for all the debts of the business
a sole trader/partnership are not regarded as a separate legal entity - the business and the owner/s are regarded as the same
if sued, the owner/s are the one who is sued
if entering a legal contract, the owner/s are the one who is entering the legal contract
if running into financial problems, the owner/s are the one who has the financial problem
state the advantages of a sole trader
low cost of entry
simplest form of business
less government regulations
no partner disputes
owner’s right to keep all profits
less costly to operate
complete control over business
profit is taxed as personal income
state the disadvantages of a sole trader
unlimited liability
burden of management
difficult to operate if sick
end of business when owner dies
need to carry all losses
need to perform a wide variety of tasks
difficulty in raising finance
define partnership
a business owned by two or more people (generally a maximum of 20)
partnership (amount, profit, establishment and legal requirements)
amount
small to medium
two or more owners
maximum of 20 partners
profit
divided among the partners according to the partnership agreement
establishment and legal requirements
a partnership can be made verbally, in writing or by implication (without a legally binding agreement)
a written partnership is worthwhile if disputes arise
separate tax file number (for business only, not partners)
explain limited partnership
a ‘sleeping’ or ‘silent’ partner who contributes financially to the business but takes no part in the operations
these partners invest to add more capital or finance to an existing partnership
state the advantages of a partnership
low start up costs
less costly to operate than a business
minimal government regulations
on death of one partner, business can keep going
shared responsibility and workload
pooled funds and talent
no taxes on business profits, only on personal income
state the disadvantages of a partnership
unlimited liability
possibility of disputes
liability for all debts, including partner’s debts, even before the partnership has begin
difficulty in finding a suitable partner
divided loyalty and authority
define incorporation
the process that a business goes through to become a registered company and a separate legal entity from the owner/shareholder
outline incorporation process
- a company name must be registered with ASIC
- ASIC will issue a certificate of incorporation and an Australian Company Number (ACN)
- requirement of ‘Ltd’ in name to signify that a business has limited liability
explain limited liability in relation to private limited company and public listed company
when the shareholders in a company will not be held personally responsible for the debts of that business
once incorporated, the company has a separate legal identity to its owners, who are now known as shareholders
- the most money a shareholder can lose is the amount they paid for their shares
explain liquidation
the process of selling off the assets of a business in order to repay creditors, with any assets remaining to be distributed among shareholders
- shareholders cannot be forced to sell their personal assets to pay for business debts
- this protection does not apply to directors as they have an obligation to ensure the company obeys the law and acts in the interest of the shareholders
define private limited company
an incorporated business with a minimum of one shareholder and a maximum of 50 non employee shareholders, and whose shares are only offered to those people whom the business wishes to have as part owners
private limited company (amount, profit and shares)
amount
small to medium sized, family owned businesses
minimum of one shareholder, maximum of 50 non employee shareholders
at least one director
profit
distributed to shareholders in the form of dividends
shares
not listed on, and not sold through a stock exchange
only offered to those people whom the business wishes to have as part owners
shareholders can sell shares only to people approved of by the other directors
explain establishment and legal requirements in relation to private limited company and public listed company
to obtain registration, a person must lodge a properly completed application form with ASIC
- sets out certain information including details of every person who has consented to be a shareholder, director or company secretary of the company
‘proprietary limited’ or ‘Pty Ltd’ must be in private limited company’s name
‘limited liability’ or ‘Ltd’ must be in public listed company’s name
the closing of an incorporated company is more complex than unincorporated
- all shareholders of the company must agree to the company being wound up
- a liquidator will manage the process of selling the company’s assets, paying its debts and distributing funds from the asset sales among the shareholders
state the advantages of a private limited company and a public listed company
limited liability
easier to attract finance
easy transfer of ownership
a long life/perpetual succession (a company does not have to be would up in the event of the death, disability or retirement of any person involved)
experienced management through board of directors
greater spread of risk
growth potential
company rate is lower than personal income rate
more for public only
attract extra capital by issuing shares on the share market (greater potential for growth)
state the disadvantages of a private limited company and a public listed company
cost of formation
the company is taxed on any profits and dividends, and the income from the company to the shareholder is taxed as personal income
personal liability for business debts if directions knew that debts could not be paid
requirement to produce an annual report of audited accounts
public disclosure (reporting of certain information)
rapid growth may lead to inefficiencies
more for public only
capital raising capacity - public listed companies are required to abide by compliance rules and disclose corporate financial information
highly complex business structure - requires greater accountability and compliance than a private limited company
define public listed company
an incorporated business with a minimum of one shareholder and no maximum, and whose shares are openly traded on the Australian Securities Exchange
public listed company (amount, profit, shares)
amount
large sized
minimum of one shareholder, no maximum
at least three directions, two must be in Australia
profit
distributed to shareholders in the form of dividends
shares
listed on, and sold through a stock exchange
general public may buy and sell shares in this type of company
no restrictions on the transfer of shares or raising of money from the public via share offers
required to provide certain information when selling its shares for the first time
define social enterprise
a business that produces goods and services for the market, operating with the objective of fulfilling a social need
social enterprise (amount, funding and profit)
amount
a cooperative (a business that is owned and operated by the group of members) or a privately owned business
funding
does not rely on donations as a main source of income
obtains funding from government to support their social goal
profit
reinvested back into the business to continue fulfilling a social need
distributed to meet the community or environmental need/s
state the social needs that may be addressed by social enterprises
- providing opportunities for local unemployed people
- developing skills, providing vocational training or lifelong learning opportunities for disadvantaged people in the community
- creating accessibility to a better quality of life for disadvantaged members of the community
- providing essential services to disadvantaged communities
- focusing on waste minimisation and recycling
state the advantages of a social enterprise
can open up new markets (the social enterprise may meet a need that a commercial business chooses not to)
meeting a social need can have a positive effect on profit and market share
state the disadvantages of a social enterprise
difficulty in obtaining capital to start the business - it can be hard to find finance
significant operating costs - social enterprises will often take on costs that conventional businesses would not
it can be difficult to focus on both social and financial objectives
define, describe and state the amount of a government business enterprise
a type of business that is government owned and operated
- carry out government policies while they deliver community services
- participate in commercial activities with the goal of making a profit
- aim to increase the value of their assets and returns to their shareholder (the government)
amount
large, company sized
employ many people
a board of management/directors usually controls a GBE, with government input into the board
state the advantages of a government business enterprise
able to carry out government policies delivering community services in areas where private sector businesses might hesitate to invest
can operate with some independence from government
provision of healthy competition to businesses operating in the private sector - this can lead to lower prices in the markets where government (owned) business enterprises are competing
state the disadvantages of a government business enterprise
political interference in the day-to-day operation of the government (owned) business enterprises
inefficiencies caused by government ‘red-tape’ - excessive regulation or rigid conformity to rules
management of government (owned) business enterprises can be less effective than that of the private sector
there can be less accountability within a government (owned) business enterprise, resulting in less productivity
state the seven business objectives
to make a profit
to increase market share
to improve efficiency
to improve effectiveness
to fulfil a market need
to fulfil a social need
to meet shareholder expectations
explain the objective to make a profit
profit is what is left after business expenses have been deducted from the money earned from sales (revenue)
an objective that is central to most businesses
a major indicator of a business’s success is the size of its profit
many businesses not only want to make a profit, but maximise their profit
increasing sales, expanding the business and increasing market share help to achieve this objective
explain the objective to increase market share
market share is the proportion of total sales in a given market or industry that is controlled or held by a business, calculated for a specific period of time
competitors are the other businesses or individuals who offer rival or competing goods to the ones offered by the business
such businesses develop an extensive product range or use many different brand names to make more profit
- small market share gains often translate into large profits for businesses
- businesses strive for the largest share in the market to maximise profitability as it has the largest customer base
explain the objective to improve efficiency
efficiency is how well a business uses its resources to achieve objectives
a business will use resources (inputs) to produce the product or service (an output)
- use resources efficiently to minimise the resources used and/or to maximise the outputs generated from those inputs
the business operates in a cost-effective and productive manner, making the most out of the available resources to achieve its objectives
product is made efficiently → sold → quicker profit
prioritise efficient quality resources over a larger quantity of lower quality resources that only meet the minimum requirements
how can efficiency be achieved?
- using up-to-date technology and innovative processes
- having highly skilled employees
- using the best quality components for the product
reduces the waste generated by the business, which will reduce the costs of the business
increases profitability instead of spending money on resources or other aspects that may hinder the pace of achieving business objectives, as profit takes longer to generate and utilise for its intended purposes
explain the objective to improve effectiveness
effectiveness is the degree to which a business has achieved its stated objectives
measuring goals or other objectives to see if effectiveness has been achieved
businesses should continue to assess effectiveness in relation to both short term and long term objectives and strive to enhance performance in these areas
- if strategies are effective, continue using
- if strategies are not effective, alter or else risk suffering losses
explain the objective to fulfil a market need
a business may exist to:
meet customers expectations and demands
provide a good or service that is not otherwise available
objectives such as the function of the product, quality, price and convenience are considered by businesses
a business can gain a competitive advantage and attract customers who are seeking solutions that are not otherwise readily available
- small businesses may be able to meet specific market needs more efficiently than larger businesses
explain the objective to fulfil a social need
the production and/or selling of goods and services for the purpose of making the world a better place
- may generate an income, but its primary purpose is the common good
objectives
- providing opportunities for local unemployed people
- assisting disadvantaged people in the community
- focusing on the environment, such as minimising waste and recycling
explain the objective to meet shareholder expectations
making profit is the primary objective of many businesses
- shareholders expect to make a return on their investment
if the part of the profit gained by the company is returned to shareholders, or the value of a company’s shares increases, then shareholders will have their expectations met
pleasing shareholders are vital to a business as they provide money for the business to use in order to achieve its objectives
define vision statement and mission statement
vision statement
what the business aspires to become (wants to achieve)
mission statement
why the business exists, its purpose and how it will operate (how the company will achieve it)
define strategies and explain an example of strategies in relation to increasing market share
strategies are how the business will attempt to achieve its objectives
a series of actions undertaken to achieve an end result
- make sure all the objectives and strategies are linked
example in relation to increasing market share
- targeting a new group of customers
- increasing the number of distribution outlets
- increasing sales by using a new promotional campaign
- improving performance or quality of existing product
define key performance indicators (KPIs)
specific criteria used to measure the efficiency and/or effectiveness of the business’s performance
to make a profit - net profit figures
to increase market share - percentage of market share
to fulfil a social need - level of wastage
define stakeholders
groups and individuals who interact with the business and have a vested interest in its activities
