U3 AOS1

Question 1

state the business types

Answer 1

sole trader
partnership

private limited company
public listed company
social enterprise
government business enterprise

Question 2

state the unincorporated business types

Answer 2

sole trader and partnership

Question 3

state the incorporated business types

Answer 3

private limited company and public listed company

Question 4

define and describe sole trader

Answer 4

a business owned and operated by one person
- provides all the finance
- makes all the decisions
- responsible for the operations of the business

Question 5

sole trader (amount, profit, establishment and legal requirements)

Answer 5

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

Question 6

explain unlimited liability in relation to a sole trader/partnership

Answer 6

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

Question 7

state the advantages of a sole trader

Answer 7

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

Question 8

state the disadvantages of a sole trader

Answer 8

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

Question 9

define partnership

Answer 9

a business owned by two or more people (generally a maximum of 20)

Question 10

partnership (amount, profit, establishment and legal requirements)

Answer 10

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)

Question 11

explain limited partnership

Answer 11

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

Question 12

state the advantages of a partnership

Answer 12

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

Question 13

state the disadvantages of a partnership

Answer 13

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

Question 14

define incorporation

Answer 14

the process that a business goes through to become a registered company and a separate legal entity from the owner/shareholder

Question 15

outline incorporation process

Answer 15

1. a company name must be registered with ASIC
2. ASIC will issue a certificate of incorporation and an Australian Company Number (ACN)
3. requirement of ‘Ltd’ in name to signify that a business has limited liability

Question 16

explain limited liability in relation to private limited company and public listed company

Answer 16

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

Question 17

explain liquidation

Answer 17

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

Question 18

define private limited company

Answer 18

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

Question 19

private limited company (amount, profit and shares)

Answer 19

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

Question 20

explain establishment and legal requirements in relation to private limited company and public listed company

Answer 20

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

Question 21

state the advantages of a private limited company and a public listed company

Answer 21

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)

Question 22

state the disadvantages of a private limited company and a public listed company

Answer 22

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

Question 23

define public listed company

Answer 23

an incorporated business with a minimum of one shareholder and no maximum, and whose shares are openly traded on the Australian Securities Exchange

Question 24

public listed company (amount, profit, shares)

Answer 24

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

Question 25

define social enterprise

Answer 25

a business that produces goods and services for the market, operating with the objective of fulfilling a social need

Question 26

social enterprise (amount, funding and profit)

Answer 26

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

Question 27

state the social needs that may be addressed by social enterprises

Answer 27

- 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

Question 28

state the advantages of a social enterprise

Answer 28

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

Question 29

state the disadvantages of a social enterprise

Answer 29

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

Question 30

define, describe and state the amount of a government business enterprise

Answer 30

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

Question 31

state the advantages of a government business enterprise

Answer 31

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

Question 32

state the disadvantages of a government business enterprise

Answer 32

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

Question 33

state the seven business objectives

Answer 33

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

Question 34

explain the objective to make a profit

Answer 34

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

Question 35

explain the objective to increase market share

Answer 35

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

Question 36

explain the objective to improve efficiency

Answer 36

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

Question 37

explain the objective to improve effectiveness

Answer 37

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

Question 38

explain the objective to fulfil a market need

Answer 38

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

Question 39

explain the objective to fulfil a social need

Answer 39

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

Question 40

explain the objective to meet shareholder expectations

Answer 40

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

Question 41

define vision statement and mission statement

Answer 41

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)

Question 42

define strategies and explain an example of strategies in relation to increasing market share

Answer 42

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

Question 43

define key performance indicators (KPIs)

Answer 43

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

Question 44

define stakeholders

Answer 44

groups and individuals who interact with the business and have a vested interest in its activities