U3AOS1 - Types of businesses Flashcards
What are the six different types of businesses?
Sole trader
Partnership
Private limited company
Public company
Social enterprise
Government business enterprise
Unlimited liability?
Requires owners to pay any losses and cover debts of the business
Limited liability?
Separate legal entity means shareholders are not responsible for the debts of the company
What is a sole trader?
A business that is owned and ran by one person
Ownership: one person
Objectives: To make profit and grow the business
Legal obligations: Unlimited liability
Sole trader advantages and disadvantages?
Advantages:
- Easy to set up - legal minimal legal formalities
- Owner retains all profits
- Control all of decision making
Disadvantages:
- Unlimited liability
- Limited access to capital
- Knowledge and skills may be limited
What is a partnership?
Two or more people entering into an agreement to run an enterprise to earn and share profits
Ownership: between 2-20 people, often family
Objectives: to make profit, grow the business, and increase capital
Legal obligations: unlimited liability
Partnership advantages and disadvantages?
Advantages:
- More financial capital
- Shared workload
- Shared risk
Disadvantages:
- Potential conflict between partners
- Shared profits
- Legal agreement required
What is a private limited company?
Companies that are separate legal entities to the shareholders, where shares are owned by family members or close friends
Ownership: 2-50 shareholders
Objectives: to make a profit and grow the business
Legal obligations: Limited liability
Private limited companies advantages and disadvantages?
Advantages:
- Limited liability for shareholders
- Raise more capital through selling shares
- Better borrowing power
Disadvantages:
- Share the profits
- More complex start up
- Higher start-up and running costs
What is a public listed company?
Shares are listed on the ASX and are available for any member of the public to buy and sell
Ownership: registered with the ASIC, no limit on number of shareholders
Objectives: to make profit and grow the business
Legal obligations: limited liability
Public listed companies advantages and disadvantages?
Advantages:
- Large amounts of money raised from selling shares
- Production costs may lower as company gains economies of scale
- Dominate market share
Disadvantages:
- Outside parties may take control of company
- Financial information is public
- Loss of contact with customers
What is a government business enterprise?
Government owned organisation that operates under a business name
Ownership: government
Objectives: to provide essential service to community
Legal Obligations: government responsible for the debts and losses of the GBE
Government business enterprises advantages and disadvantages?
Advantages:
- Limited price fluctuations of products
- Provide essential services
- Control of the industry
Disadvantages:
- Losses may lead to higher taxes
- Lack of competition leads to inefficiencies
What is a social enterprise?
Organisation that uses market-based ventures to achieve a benefit to the community
Ownership: incorporate as a NFP organisation or capital held in trust on behalf of the enterprise
Objectives: to make profit that allows social projects to be funded
Legal Obligations: limited liability
Social enterprise advantages and disadvantages?
Advantages:
- Opportunity to make a difference in the community
- Target specific sectors of the community
- Less affected by competitor’s price change
Disadvantages:
- Legal risk – must meet social mission
- Limited tax benefits for investors
- Potential cash flow problems
