UNIT 3 AOS1 - SAC 1

Question 1

Define limited liability.

Answer 1

Limited liability means the owners of business are only financially responsible for the debts of the company up to the amount of their investment in the company.

Question 2

Define unlimited liability.

Answer 2

The owner is fully responsible for any debts incurred by the business.

Question 3

Define incorporation.

Answer 3

The process that a business goes through to become a separate legal entity from the owner/shareholder.

Question 4

Define the board of directors.

Answer 4

A group of people elected by a company’s shareholders to represent their interests. The board is responsible for serving as a governing body for an organisation.

Question 5

List the types of business.

Answer 5

• Sole Trader
• Partnership
• Private limited company
• Public listed company
• Social Enterprises
• Government Business Enterprise (GBE)

Question 6

Explain a sole trader.

Answer 6

A sole trader is a business that is owned by one person

• The business and the owner have the same legal entity
• The owner of a sole trader business has unlimited liability
• Unlimited liability means that the owner is personally responsible for any debts incurred by the business
• The owner must have an ABN to begin trading and may need to register with ASIC

Question 7

List the advantages and disadvantages of a sole trader.

Answer 7

Advantages:
- Simple and inexpensive to set up
- Owner has complete control
- No disputes with partners
- Less government regulation
- Owner keeps all the net profits

Disadvantages:
- Unlimited liability (personally responsible for all debts)
- More difficult to gain finance
- Burden of managing entire business Take 100% of financial risk
- Heavy reliance on owner’s skills (May be required to take on multiple roles)
- End of business when owner dies and hard to operate when they are sick

Question 8

Explain a partnership.

Answer 8

A partnership is a business that is owned by between 2 and 20 people

• The owners have unlimited liability
• Some businesses may have a silent partner. This partner invests, but plays no active role in the running of the business
• To minimise disputes between partners, it can assist to have an official partnership agreement

Question 9

List the advantages and disadvantages of a partnership.

Answer 9

Advantages:
- Simple and inexpensive to set up
- Workload can be shared among partners
- Greater pool of experiences to help make stronger decisions
- Increased funds
- Financial risk is shared

Disadvantages:
- Unlimited liability (personally responsible for all debts). All partners are 100% liable
- Profits are shared among partners
- Potential for disagreements between the partners
- May be difficult to remove a partner
- Difficulty in finding a suitable partner

Question 10

Explain a private limited company.

Answer 10

An incorporated business that is owned by 1-50 shareholders and shares cannot be freely sold or traded to members of the public.

• A private company must have at least one director.
• The director is a senior manager that makes decisions on behalf of the shareholders
• Shares cannot be freely sold or traded to members of the public
• A private limited company will have ‘Pty Ltd’ at the end of their name E.g. Cotton On Group Pty. Ltd.

Question 11

List the advantages of disadvantages of a private limited company.

Answer 11

Advantages:
- Limited liability for shareholder
- Potentially a greater ability to raise capital
- Potential tax benefits
- Life of the company can live longer than the directors (perpetuity)
- Maintain control over who owns the company

Disadvantages:
- More complex and expensive to establish
- More reporting requirements to the owners and the government
- Shares cannot be freely traded
- Less liquidity for shareholders compared to a public listed company (more difficult to sell shares)

Question 12

Explain a public listed company.

Answer 12

An incorporated business that can sell shares in an open market to an unlimited number of shareholders.

A public listed company is an incorporated business that is owned by a minimum of 1 person and is listed on a public exchange such as the ASX

• Owners of public listed companies have limited liability
• Shares can be freely traded to members of the public
• When a company first lists on an exchange, it offers its shares to the public for purchase. - This is called an initial public offering (IPO)
• Public companies are required to notify the public of their performance

Question 13

List the advantages and disadvantages of a public listed company.

Answer 13

Advantages:
- Limited liability for shareholders
- Greater ability to raise capital through sale of shares or issuing bonds
- Life of the company can live longer than the directors (perpetuity)
- Greater liquidity for shareholders (easier to sell shares)

Disadvantages:
- Very complex and expensive to establish
- Greater reporting and compliance requirements
- No control over who owns the company

Question 14

Explain a social enterprise.

Answer 14

A business that produces goods and services for the market to make a profit, but operates with the primary objective of fulfilling a social need.

• A social enterprise is a business that has the primary aim to address and improve a social or community cause
• They still operate commercially and aim to make a profit
• The profits generated are often primarily used towards the social issue they are aiming to improve
• Some social enterprises may rely on government grants and other donations
• Examples include Thank You, Vanguard Laundry Services, STREAT

Question 15

List the advantages and disadvantages of a social enterprise.

Answer 15

Advantages:
- May attract customers due to them believing in the social cause
- Can improve employee morale as the employees feel they are contributing to a worthy cause

Disadvantages:
- Difficult to focus on profits while also focusing on the social cause
- May need to constantly work with tight budgets, making it more difficult to compete

Question 16

Define a government business enterprise.

Answer 16

A government business enterprise is owned by the government, acting as a source of government revenue.

Thus, the government business enterprise, such as Australia Post, main objective is maximising profits in order to generate revenues collected by the government.

(GBE)

• They still operate commercially and aim to make a profit while carrying out government policies
• Normally controlled by a board of directors as well as two shareholder ministers (government ministers)
• Examples include: Australia Post and NBN Co

Question 17

List the advantages and disadvantages of a government business enterprise.

Answer 17

Advantages:
- 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 the government
- Healthy competition to businesses operating in the private sector - this can lead to lower prices in the markets

Disadvantages:
- Political interference in the day-to-day operation of the GBE
- Inefficiencies caused by government ‘red-tape’ excessive regulation or rigid conformity to rules
- Management of GBEs can be less effective than that of the private sector
- There can be less accountability within a GBE resulting in less productivity.
- Objectives and funding may change with change of government

Question 18

List the types of business objectives.

Answer 18

1. To make a profit
2. To increase market share
3. To improve efficiency
4. To improve effectiveness
5. To fulfil a market need
6. To fulfil a social need
7. To meet shareholder expectations

Question 19

Explain what business objectives are.

Answer 19

Business objectives are specific goals the business is aiming to achieve in a specified period of time

• Objectives provide managers and employees with a sense of direction and purpose
• Objectives should be measurable so it can be determined if they have been achieved or not
• Businesses will implement strategies that work towards the achievement of the set objectives
• Objectives help identify and prioritise resources required to achieve the goals

Question 20

Explain the objective to make a profit.

Answer 20

• Central to most businesses
• Profit = what is left after business expenses
• Expense exceeds revenue = loss

Profit is the amount of money left after expenses have been deducted from revenues earned.

Revenue: The money brought into the business through the sale of goods/services
Expenses: the costs of operating the business

• Profits are important for business so they are able to survive and grow
• Businesses can look to improve their profits by increasing revenues or minimising expenses or both

Question 21

Explain the objective to increase market share.

Answer 21

Market share is the proportion of sales a business has compared to the total sales in the industry, expressed as a percentage

• Market share is a measure of competitiveness. If it is increasing, customers are choosing the business over competitors
• Small businesses may compare against local competitors, while larger businesses may be comparing on a national scale

Question 22

Explain the objective to improve efficiency.

Answer 22

• Efficiency is a measure of how well a business is using its resources
• Using fewer resources (materials, employees, time) means the business is being more efficient

Improving efficiency could:
- Allow the business to get products to the market quicker
- Reduce costs in the business (improving profits)
- Reduce the amount of waste, minimise impact on the environment
- Allow the business to lower prices for customers

Question 23

Explain the objective to improve effectiveness.

Answer 23

• Effectiveness is the ability of a business to achieve their objectives
• Being effective may allow the business to produce higher quality products, improving customer satisfaction and customer loyalty
• Managers will implement strategies for the business to achieve their objectives, leading to greater effectiveness

Question 24

Explain the objective to fulfil a market need.

Answer 24

A market need is a gap or problem in the market that a business can look to satisfy/solve

• Identifying market needs can help a business determine what goods or services they will offer and how to position them to meet the needs of potential customers
• Market research can help a business determine where the gaps in the market are
• May exist to meet customer expectations or provide a good or service that is not otherwise available to a market.

Question 25

Explain the objective to fulfil a social need.

Answer 25

Production and/or selling of goods and services for the purpose of helping a social cause (still strive to make a profit).

• Businesses may look to satisfy a particular social or community cause.
• This is a common objective for a social enterprise
• Fulfilling the social need is aimed at supporting the cause to improve the situation

EG: Thankyou, water provides clean water, food and hygiene to global marginalised communities.

Question 26

Explain the objective to meet shareholder expectations.

Answer 26

Shareholders are the owners of companies

• Managers will look to implement strategies that will increase this return for shareholders.
• Shareholders want the company to have a good corporate social responsibility record.

Shareholders are often looking for a return on their investment, through:
- Sharing in profits (through dividends)
- The value of their shares increasing (often tied to the value of the company and its future prospects)

Question 27

Define the term stakeholders.

Answer 27

The people and groups that interact in some way with the business and have a vested interest (or stake) in its activities (stakeholders can be both internal and external).

• Stakeholders have different interests in the business
• Managers need to consider the interests of different stakeholder and the impact any decision may have on them
• Stakeholders can come from the internal environment of the business or from the external environment

Question 28

List the types of business stakeholders.

Answer 28

• Owners
• Managers
• Employees
• Customers
• Suppliers
• General community

Question 29

Explain the stakeholder: owner.

Answer 29

Owners are those that owns part of the business.

• Depending on the type of business and the type of ownership, the owner may or may not be part of the daily operations
• Many owners will be heavily involved in key decision-making in the business. Those that own a small portion may not be involved in these decisions.
• The INTEREST is to receive a return on their investment and see growth in the business
• Shareholders are owners of a company, with up to 50 in private limited companies and unlimited in private listed companies.
• Shareholders have ownership interest and voting rights at annual general meetings (AGMs).
• Shareholders receive a portion of the distributed profits based on the number of shares held (dividends).

Question 30

Explain the stakeholder: managers.

Answer 30

Managers must ensure business strategies achieve objectives.

• Managers are those that make decisions and lead others to achieve business objectives
• Managers are responsible for the day-to-day operations of the business
• Managers need to consider the impact their decisions have on other stakeholders
• INTEREST: to be involved in decision-making and work towards the business objectives as well as receive fair remuneration.
• NOT WANT: Poor financial performance may prompt a review of strategies, processes, and employee performance.
• WANT: Management staff expect fair compensation, including salary and benefits.
• Must try to satisfy as many stakeholder expectations as possible

Question 31

Explain the stakeholder: employees.

Answer 31

• Employees are vital contributors to business production - quality of products depends on skill and commitment.
• WANT: Fair pay, proper training, ethical treatment and long-term job security.

Question 32

Explain the stakeholder: customers.

Answer 32

• WANT: Customers value quality, reasonable prices, and high/good service.
• Prefer socially responsible businesses eg. environmentally friendly.
• Businesses need to adapt to changing customer preferences and tastes.

Question 33

Explain the stakeholder: suppliers.

Answer 33

• Suppliers provide essential resources like raw materials, equipment, machinery, etc.
• Good business relationships are crucial for timely delivery of quality resources.
• WANT: Suppliers expect prompt and full payment.
• Businesses expect suppliers to be CSR.

Question 34

Explain the stakeholder: the general community.

Answer 34

Expect businesses to contribute to society, demonstrate future welfare through employment, and demonstrate environmental concern.

Question 35

Explain employees and owners/shareholders’ conflicting interests.

Answer 35

Employees require safe working conditions and reasonable wages, but this may reduce the business’s profit and dividends to owners/shareholders.

Question 36

Explain management and customers’ conflicting interests.

Answer 36

Management could attempt to maintain profit and a high dividend to satisfy shareholders by raising the prices of products, but this will upset customers, who expect reasonably priced products.

Question 37

Explain management and the general community’s conflicting interests.

Answer 37

Management might decide to cut costs by neglecting maintenance, which could possibly put members of the community in danger.

Question 38

Explain suppliers and the general community’s conflicting interests.

Answer 38

Suppliers expect to be paid fairly and promptly, but they might reduce costs by using unethical or socially irresponsible practices, which can upset members of the community.

Question 39

Explain management and suppliers’ conflicting interests.

Answer 39

Management wishes to keep costs down to improve profit but suppliers providing ethical materials require higher prices to cover their costs.

Question 40

Define corporate social responsibility.

Answer 40

The obligations a business has over and above its legal responsibilities to the wellbeing of employees and customers, shareholders and the community, as well as the environment

Question 41

List the types of management styles.

Answer 41

1. Autocratic
2. Persuasive
3. Consultative
4. Participative
5. Laissez-faire

Question 42

Define the management style: autocratic.

Answer 42

Where the manager makes decisions themselves and tells the employees the decision.

1. Manager makes decisions without employee input (centralised decision-making)
2. One-way communication
3. Clear, unambiguous communication to employees
4. Manager may constantly monitor employee progress
5. May motivate employees through discipline and threats

Question 43

Outline when an autocratic style is most effective.

Answer 43

Nature of Task:
Simple tasks + crisis

Time:
Urgent + quick decisions

Employee Experience:
Limited skills and/or knowledge

Manager preference:
Prefer to maintain control and act upon their ideas quickly

Question 44

Outline the advantages and disadvantages of an autocratic style.

Answer 44

Advantages
1. Decisions are made quickly
2. Communication is clear, ensuring employees understand their tasks
3. Can be effective when employees lack motivation

Disadvantages
1. Smaller pool of ideas due to no employee input
2. Can reduce creativity in the business
3. Difficult to get buy-in from employees on decisions
4. Absence of employee input hinders skill development and employee value.
5. Lack of responsibility may make employees feel undervalued which may reduce job satisfaction, affecting absenteeism and staff turnover.
6. Increased conflict due to competition for manager approval.
7. Development of ‘us and them’ mentality due to lack of input.

Question 45

Define the management style: persuasive.

Answer 45

Where the manager makes decisions themselves and aims to convince the employees the decision is best.

• Manager makes decisions without employee input (centralised decision-making)
• One-way communication
• More communication - reasons for the decision
• A task-orientated style where the focus is on employees completing tasks

Question 46

Outline when a persuasive style is most effective.

Answer 46

Nature of Task:
Simple, challenging, & complex tasks.

Time:
Urgent + quick decisions.

Employee Experience:
Has skill but no confidence or knowledge to complete the task.

Manager preference:
Prefer to maintain control but aim to get employees on board with decisions.

Question 47

Outline the advantages and disadvantages of a persuasive style.

Answer 47

Advantages
- Decisions made relatively quickly
- Managers gain trust and support through persuasion.
- Employees’ feelings considered positively impact how they approach tasks and business.
- Consistent, clear instructions and explanations foster acceptance and that they understand their task.

Disadvantages
- Attitudes + trust = negative
- Smaller pool of ideas = no employee input
- Poor + one-way communication = harm morale
- Employees may feel manipulated over time

Question 48

Define the management style: consultative.

Answer 48

Where the manager recognises the importance of good personal relationships among employees and consults with staff on certain issues before making a decision.

• Two-way communication
• Manager believes employees can be motivated through greater involvement in decision-making

Question 49

Outline when a consultative style is most effective.

Answer 49

Nature of Task:
Complex + requires mutiple perspectives

Time:
More time availiable

Employee Experience:
Knowledgeable on the situation

Manager Preference:
Value employee input + buy-ins from employees + yet maintain control over final decisions

Question 50

Outline the advantages and disadvantages of a consultative style.

Answer 50

Advantages
- Encourages diverse ideas and improves management decisions.
- Increases employee ownership and interest in business operations.
- Increases motivation and commitment.
- Facilitates efficient and effective task completion through pre-implementation discussions.

Disadvantages
- Slow consultation time can stifle the process.
- Some issues may not be suitable for widespread consultation.
- Inconsistency in decision-making can cause staff confusion.
- Some shared ideas may be overlooked, causing conflict or resentment.

Question 51

Define the management style: participative.

Answer 51

Where the manager collaboratively makes decisions with the employees.

• Employees are valued - recognise employee strengths and abilities and involve in decision-making
• Manager and employees make decisions together = decentralised management style
• Two-way communication - ideas and feedback are encouraged

Question 52

Outline when a participative style is most effective.

Answer 52

Nature of Task:
Often best when tasks are complex and discussion needs to occur before decisions are made

Time:
Best when more time is available so solutions can be discussed

Employee Experience:
Is best when the employees are experienced and have in-depth knowledge of the issue

Manager preference:
Some managers have a preference to empower employees and utilise their skills and knowledge

Question 53

Outline the advantages and disadvantages of a participative style.

Answer 53

Advantages
- Reduces likelihood of industrial disputes.
- Increases acceptance of management decisions.
- Optimal motivation and job satisfaction due to active task allocation.
- Increased opportunities for skill acquisition.
- Power-sharing approach encourages team development.
- High levels of trust result in improved performance.

Disadvantages
- Time-consuming decision-making due to differing views.
- Quality of decisions may suffer due to compromises.
- Management’s role may be weakened due to excessive employee power.
- Internal conflict may arise due to shared opinions.
- Not all employees may want to contribute.

Question 54

Define the management style: laissez-faire.

Answer 54

Where employees are responsible for workplace operations and management has no central role or decision-making power.

• Completely decentralised management style

Question 55

Outline when a laissez-faire style is most effective.

Answer 55

Nature of Task:
Can be used for relatively simple tasks where manager is not required. However, can be beneficial for specialised tasks where the employee is the expert.

Time:
Can be used when time is critical so multiple employees can be responsible for their own tasks, sharing the load. Or when the employee has time to complete large projects.

Employee Experience:
Best used when employees are highly skilled and experienced and are able to work independently.

Manager preference:
The manager that uses this style has a preference to trust employees with tasks and provide them freedom and autonomy to get the job done

Question 56

Outline the advantages and disadvantages of a laissez-faire style.

Answer 56

Advantages
- Sense of ownership promotes outstanding results.
- Encourages creativity for dynamic work environment.
- Open communication facilitates idea discussion and sharing.

Disadvantages
- Management lacks control, leading to potential misuse of resources.
- Employees may not cooperate or implement ideas.
- Lack of management can lead to personal conflicts.
- Removes focus on meeting business objectives can result in a failed business.

Question 57

List the factors to consider when selecting a management style.

Answer 57

• Task Nature
• Time
• Employee Experience
• Manager’s Preference: Personality, experience, values, beliefs, and skills influence the choice of management style.

Question 58

Define the contingency management theory.

Answer 58

Stresses the need for flexibility and the adaptation of management styles to suit the situation.

Question 59

List the management skills.

Answer 59

• Communication
• Delegation
• Planning
• Leadership
• Decision-making
• Interpersonal skills

Question 60

Define the skill of communication.

Answer 60

The transfer of information from a sender to a receiver.

• Within and outside the business
• Non-verbal or verbal

Question 61

Outline the positives and negatives of the skill communication.

Answer 61

Positive
- Clear, articulate, and concise communication maintains good relationships.

Negatives
- Communication can lead to disagreements and resentment among employees and management.
- Positive relationships formed through communication can become distractions and reduce productivity.
- Communication can be time-consuming and can result in information overload.

Question 62

Define the skill of delegation.

Answer 62

The authority and responsibility to carry out specific activities is transferred from a manager to an employee.

• Manager = accountable for task outcome but allows employee decision-making
• Must use clear communication

Question 63

Outline the positives and negatives of the skill delegation.

Answer 63

Positives
- Effective time management and skill learning.
- Fosters fresh ideas and improved employee motivation.
- Builds trust and mutual understanding between subordinate and manager.
- Support, deadline setting, and task evaluation can reduce risk of inadequate completion.

Negatives
- Employees may misuse power, such as sharing confidential information or engaging in unethical practices, can occur.

Question 64

Define the skill of planning.

Answer 64

The ability to define business objectives and determine methods/strategies that will be used to achieve those objectives.

It provides the key to both the short- and long-term success of a business.

Question 65

List and briefly explain the types of planning.

Answer 65

Strategic planning: Identifies market positioning and competitive goals for the next two to five years.

Tactical planning: Flexible, adaptable, and supports strategic plan implementation over one to two years.

Operational planning: Details business operations in the short term, focusing on daily and weekly production schedules.

Question 66

List the steps in the planning process.

Answer 66

1. Define the objective
2. Identify the environment
3. Develop alternative strategies
4. Implement an alternative
5. Monitor and seek feedback on the implemented strategy

Question 67

Outline the positives and negatives of the skill planning.

Answer 67

Positives
- Provides business purpose and direction.
- Creates unity and motivation through clear objectives and strategies.
- Reduces risk and uncertainty, ensuring efficient resource use.

Negative
- Can be costly and time-consuming, potentially obstructing innovation or creativity.

Question 68

Define the skill of leadership.

Answer 68

The ability to influence or motivate people in the business to work to achieve the business objectives.

Question 69

List and briefly explain the types of leadership.

Answer 69

Transactional: leader provides staff with rewards in return for their compliance and acceptance of authority.

Transformational: leader inspires staff with a vision to ensure that they are committed to achieving the objectives of the business.

Question 70

Outline the positives and negatives of the skill leadership.

Answer 70

Positives
- Effective leadership leads to motivated employees and high morale.
- Employees with direction and trust in management work harder and efficiently, boosting productivity and business objectives.

Negatives
- Busy leaders sacrificing time for productive activities, potential conflicts with employees, and the development of an ‘us versus them’ mentality.

Question 71

Define the skill of decision-making.

Answer 71

The ability to identify the options available and then choose a specific course of action from the alternatives

• Ability to make decisions within a particular time frame
• Requires manager to assess risk involved in the decision

Question 72

List the steps in the management skill decision-making.

Answer 72

1. Develop objectives and criteria
2. Outline the facts
3. Identify alternative solutions
4. Analyse the alternatives
5. Choose one alternative and implement it

Question 73

Outline the positives and negatives of the skill decision-making.

Answer 73

Positives
- Group decision-making can collect more ideas and knowledge, leading to better decisions and effective implementation.
- Effective decision-making ensures the best available option is acted upon, which can reduce risks within a business.

Negatives
- Decision-making in groups can be slower due to the need for consensus and discussion.
- Group decision-making may not be suitable for all situations, especially in emergencies or crises requiring immediate action.

Question 74

Define the skill of interpersonal skills.

Answer 74

The ability to deal with people and build positive relationships with staff.

• Important because it helps managers achieve business objectives through other people.
• A manager who can understand and utilise diverse perspectives effectively is more likely to achieve objectives.

Question 75

Outline the positives and negatives of the skill interpersonal skills.

Answer 75

Positives
- Influence and inspire staff, overcoming conflict.
- Create a respectful and collaborative workplace.
- Managers lacking empathy, arrogance, opinionation, or effective communication hinder positive relationships.
- Absence of such managers may boost productivity by removing fear and intimidation.
- Lead to higher staff morale and productivity.

Negatives
- Learning and application of interpersonal skills can be time-consuming.
- Misuse of interpersonal skills can lead to manipulation.
- Examples include tricking employees into aligning with management’s views or luring customers into unnecessary purchases.

Question 76

Define corporate culture.

Answer 76

All businesses have their own corporate culture — the values, ideas, expectations and beliefs shared by the staff and managers of the business.

Question 77

Explain official corporate culture,

Answer 77

What the business wants the shared values and beliefs of the members in the business to be.

This can be seen in:
- Mission statement
- Values statement
- Policies
- Slogans
- Objectives

Question 78

Explain real corporate culture.

Answer 78

The underlying values, beliefs and behaviours of the people within the business.

This can be seen in:
- How managers communicate with staff
- How employees treat each other in the workplace
- How employees deal with customers
- The standard of the employees’ dress

Question 79

List and explain the elements of corporate culture.

Answer 79

Values: the way things are done in the business or the behaviours and mindsets needed to achieve those objectives eg. quality customer service.

Symbols: events or objects that are established to represent something the business believes in eg. business values positive competition = sporting event

Rituals and celebration: the routine behavioural patterns in a business’s everyday life eg. regular social gatherings for employees.

Heroes: the business’s successful employees who reflect its values and therefore, act as examples for others.

Question 80

List the benefits of having a positive corporate culture.

Answer 80

• Reduced staff turnover
• Employer of choice
• Improved productivity
• High staff morale

Question 81

Explain what a company is.

Answer 81

• A company structure is a business that has gone through the process of incorporation
• The owners of the company, purchase shares. These shares determine the ownership portion. Owners are called ‘shareholders’
• The company has a separate legal entity to the owners.
• The company can take on debt, sue and be sued and purchase assets
• The owners have limited liability