1 Types of business

Question 1

What does the term “incorporated” refer to in business?

Answer 1

Incorporated” refers to the process by which a company becomes a separate legal entity from its owners, allowing the business to exist independently of the owners’ personal status. (private, public company)

Question 2

What is the legal status of an incorporated business?

Answer 2

An incorporated business is a legal entity in its own right, meaning it continues to operate regardless of the status of individual shareholders or owners.

Question 3

What percentage of businesses in Australia are incorporated?

Answer 3

57% of businesses in Australia are incorporated.

Question 4

What is an unincorporated business?

Answer 4

An unincorporated business is one where the business entity and the owner are considered the same. If the owner dies, the business also ceases to exist.

Question 5

What is the most common legal structure for small businesses in Australia?

Answer 5

The most common legal structure for small businesses in Australia is the unincorporated business entity.

Question 6

Why is the unincorporated business structure popular for small businesses in Australia?

Answer 6

The unincorporated business structure is the easiest and cheapest to establish, which makes it popular among small business owners.

Question 7

What percentage of businesses in Australia are unincorporated?

Answer 7

43% of businesses in Australia are unincorporated.

Question 8

Why is selecting the appropriate business structure important for a business owner?

Answer 8

Choosing the right business structure is crucial because it impacts the business’s legal status, financial liability, and overall operations.

Question 9

What is a local business?

Answer 9

A local business operates within a single location or area, typically serving the local community or region.

Question 10

What is a national business?

Answer 10

A national business operates across Australia and has greater awareness among consumers across the country.

Question 11

What is a regional business?

Answer 11

A regional business operates within a specific geographical region, such as the Asia-Pacific region, where Australia does much of its trade.

Question 12

What defines a global business?

Answer 12

A global business is one whose ownership and production are based in one country but exports goods and services to other countries. Importers are also considered global businesses.

Question 13

What is a transnational corporation?

Answer 13

A transnational corporation has operations and a base in more than one country. Example: McDonald’s.

Question 14

How are businesses classified by industry?

Answer 14

Businesses are classified according to their role in the production process: raw material acquisition, manufacturing, service provision, and information or financial services.

Question 15

What is the primary function of a business in the primary industry?

Answer 15

Primary industry businesses acquire raw materials and natural resources, such as wheat or minerals.

Question 16

What does a secondary industry business do?

Answer 16

A secondary industry business uses raw materials, farming, mining, fishing, labor, and capital to create finished products.

Question 17

What is the focus of businesses in the tertiary industry?

Answer 17

The service industry. This sector provides services rather than goods and includes areas like healthcare, education, finance, entertainment, retail, and transport. It’s about delivering support or assistance to consumers and businesses.

Question 18

What is the quaternary industry?

Answer 18

Quaternary Sector: Knowledge-based services. This includes research, information technology, education, consulting, media, and high-tech innovation. It’s cantered around intellectual and information-driven activities.

Question 19

What does the quinary industry include?

Answer 19

The quinary industry includes businesses that provide services traditionally performed at home, such as cleaning businesses or childcare.

Question 20

What are government enterprises?

Answer 20

Government enterprises are public sector businesses that provide essential services and have been corporatised to perform like private companies, subject to ATO provisions.

Question 21

What is the process of privatisation?

Answer 21

Privatisation is the sale of government businesses to the private sector, often leading to them being floated on the Australian Stock Exchange (ASX).

Question 22

What does corporatisation mean?

Answer 22

Corporatisation is the process of turning government businesses into public companies, subject to the same regulations and requirements as private companies, including incorporation.

Question 23

What is a co-operative business?

Answer 23

A co-operative is a company owned by its suppliers, such as dairy farmers, where dividends are paid based on the percentage of resources contributed by each member

Question 24

What is a sole trader?

Answer 24

A sole trader is a business owned and operated by one person. The owner, known as the proprietor, has full control over finances, management, marketing, and operations.

Question 25

Why is the sole trader structure common in Australia?

Answer 25

The sole trader structure is common because it is easy and inexpensive to set up.

Question 26

What must a sole trader in NSW do to operate legally?

Answer 26

A sole trader in NSW must register the business with the Department of Fair Trading to ensure customers know who they are dealing with.

Question 27

What is the liability of a sole trader?

Answer 27

A sole trader has unlimited liability, meaning if financial or legal problems arise, their personal assets can be repossessed to settle debts.

Question 28

What is a partnership?

Answer 28

A partnership is a business structure where 2-20 people come together to provide a good or service. Partnerships are commonly formed between family members or for professional services.

Question 29

What is the maximum number of partners allowed in a partnership?

Answer 29

A partnership can have up to 400 partners, depending on the nature of the business.

Question 30

What is the liability in a partnership?

Answer 30

In a partnership, all partners have unlimited liability, meaning they are personally responsible for the business’s debts and liabilities.

Question 31

What are the registration requirements for a partnership in NSW?

Answer 31

A partnership in NSW must be registered with the Office of Fair Trading and is governed by the Partnership Act NSW 1892.

Question 32

What is a limited partnership?

Answer 32

A limited partnership allows individuals to invest funds without taking an active role in the business. It offers limited liability, meaning investors’ personal assets are protected.

Question 33

What is a private company?

Answer 33

A private company, or proprietary limited company, is owned by 2-50 people and is not listed on the stock exchange. Ownership is by private invitation, such as family or friends.

Question 34

hat are the advantages of a private company?

Answer 34

A private company offers limited liability for its owners, and although it can be expensive to set up, it is regulated by the Corporations Act 2001 and overseen by the Australian Securities and Investments Commission (ASIC).

Question 35

How is a private company different from a public company?

Answer 35

Unlike a public company, a private company is not listed on the stock exchange and can only have 2-50 owners, who are typically family members or friends.

Question 36

What is a public company?

Answer 36

A public company is a business listed on the stock exchange, where the public can buy and sell shares. This structure suits large enterprises that need to raise large amounts of capital

Question 37

Number of employees of a Micro Small medium Large business

Answer 37

micro - fewer then 5 small - less then 20 medium - 20 - 199 large - 200 or more

Question 38

What is the typical legal structure for the smallest businesses?

Answer 38

The smallest businesses tend to be sole traders or single-member private companies. As the business grows, its legal structure may change.

Question 39

How can localisation affect a business's legal structure?

Answer 39

Localisation can influence the size of a business. A sole trader may incorporate and become a private company, and a successful private company may eventually float on the stock exchange to become a public company.

Question 40

Can you give an example of a private company that has not become public?

Answer 40

A: Mitigate, a medical supplier and equipment manufacturer, is an example of a successful private company that has chosen not to go public to maintain ownership and control.

Question 41

How does business growth affect legal structure?

Answer 41

As businesses grow, they often need to specialise functions, employ staff, and access funding. The legal structure may limit the ability to scale, but incorporated entities tend to have the greatest capacity for growth

Question 42

How does ownership influence the choice of legal structure?

Answer 42

Ownership is a key factor in choosing a legal structure. Small business owners often have control, and the structure can allow for total control (e.g., sole traders) or may dilute control as more owners are added (e.g., in a public company).

Question 43

How does the move from a private to a public company affect ownership?

Answer 43

The biggest issue in moving from a proprietary structure to a public company is the loss of ownership, as the process involves offering shares to external investors.

Question 44

How do finance needs impact the choice of legal structure?

Answer 44

Small businesses often use personal savings or loans to fund operations. As the business grows, the ability to borrow funds increases, and incorporated businesses tend to find it easier to secure financing compared to non-incorporated businesses.

Question 45

How does the finance capacity of businesses increase with size?

Answer 45

As a business generates more income and profits, its capacity to borrow funds increases, enabling it to expand further.

Question 46

What is the legal structure of a private company?

Answer 46

A private company has between 2 to 50 shareholders and is usually designated as "Proprietary Limited" (Pty Ltd).

Question 47

What defines a public company?

Answer 47

A public company is listed on the ASX and can have many shareholders. Its shares are available to the public for purchase.

Question 48

What is the typical number of employees for a micro business?

Answer 48

Fewer than 5 employees.

Question 49

What is the number of employees in a large business?

Answer 49

200 plus employees.

Question 50

What type of ownership is common in a small business?

Answer 50

Sole trader/partnership.

Question 51

Who is responsible for decision making in a micro business?

Answer 51

The owner is responsible for the majority of decisions, with simple and quick implementation.

Question 52

How is decision-making handled in a large business?

Answer 52

Decisions are more complex due to division of responsibilities among directors, senior, and middle management.

Question 53

What is the primary source of finance for a small business?

Answer 53

Owner's savings or loans, but accessing loans can be difficult.

Question 54

What is the source of finance for a large business?

Answer 54

Many sources, including cash reserves, retained profit, sale of shares, and loans from domestic and overseas.

Question 55

What is the market share for a large business?

Answer 55

Large, especially multinational corporations (MNCs) that may dominate markets in many countries.

Question 56

How does a global business operate?

Answer 56

A global business produces goods in one country and sells them across many countries, exporting goods and services. It often faces risks like exchange rate fluctuations and delivery issues but can achieve global reach through e-commerce.

Question 57

What is the scale and reach of a national business?

Answer 57

A national business operates across an entire country, has high consumer brand awareness, and operates in multiple locations, allowing it to achieve cost savings through bulk buying.

Question 58

What defines a local business?

Answer 58

A local business operates within a local area, has limited consumer brand recognition, and produces goods and services to sell to a local consumer market.

Question 59

What are some risks associated with global business operations?

Answer 59

Risks include exchange rate fluctuations, prompt payment issues, and safe delivery of imports and exports.