Chapter 2: Types of Businesses

Question 1

what are the four common methods used to classify businesses?

Answer 1

1. Size
2. Industry Sector
3. Legal structure
4. Geographical Spread

Question 2

What are measurements to determine the size of a business?

Answer 2

• number of employees
• number of owners
• market share (% of total market sales the business has compared to competitors)
• legal structure

Question 3

What is a micro business, small business, medium business and a large business? (broad definition)

Answer 3

A thorough definition of small, medium and large businesses involves a combination of both quantitative measurements and qualitative descriptions.

Micro business: fewer than five employees
Small business: 5-19 employees
Medium business: 20-199 employees
Large business: 200+ employees

Question 4

What is a microbusiness ? Provide examples.

Answer 4

fewer than 5 employees (including owner)
Many operate out of a SOHO (small office home office)
Types vary from trades (painters, plumbers, electricians etc) to professional services (doctors, accountants, solicitors etc.), corner stores, farms, personal trainers and many more.

Question 5

What is the most rapidly growing business type in Australia?

Answer 5

Microbusiness - makes up around 80% of the entire sector

Question 6

What does the term incorporated mean?

Answer 6

Refers to the process companies go through to become a separate legal entity from the owner/s.

Question 7

What is an unincorporated business?

Answer 7

Businesses that have not gone through the process to become incorporated. Thus, the owners are the business. Thus,
- Owner(s) have unlimited liability meaning bank can repossess owner’s personal assets
- Owner pays regular tax
- Sole trader or partnerships

Question 8

What is an incorporated business?

Answer 8

A business that has gone through the process to become a separate legal entity from the owner(s). Business exists in its own right, its own legal entity.
- private and publicly owned companies, generally medium to large

Question 9

What is a sole trader/sole proprietorship?

Answer 9

A business owned and operated by one person

Question 10

What is a partnership?

Answer 10

A legal business structure owned and operated between 2-20 people

Question 11

What are 3 advantages of being a sole trader?

Answer 11

• complete control
• less costly to operate
• no partner disputes
• less government regulation
• owner’s right to keep profits
• low cost of entry

Question 12

What are 3 disadvantages of being a sole trader?

Answer 12

• unlimited liability for business debts
• burden of management
• difficult to operate if sick
• end of business when owner dies
• difficult in raising finance for expansion
• must carry all losses

Question 13

What are 3 advantages of being in a partnership?

Answer 13

• low start-up costs
• shared responsibility
• pooled funds and talent
• no taxes on business profits, only on personal income
• on death of one partner, business can keep going

Question 14

What are 3 disadvantages of being in a partnership?

Answer 14

• personal unlimited liability
• liability for all debts, including partner’s even before partnership has begun
• possibility of disputes
• divided loyalty and authority

Question 15

what is a limited partnership?

Answer 15

when one or more partners contribute financially to the business but take no part in the running of the partnership.
Referred to as a silent or sleeping partner

Question 16

What is the main reason for limited partnerships?

Answer 16

to add more capital or finance to an existing partnership

Question 17

What is a proprietary (private) company?

Answer 17

• typically has 1-50 owners
• usually medium sized
• have to be invited by owner
• Cannot buy shares publicly on stock market

Question 18

What is a public company?

Answer 18

• always large
• anyone can buy shares
• typically with thousands of shareholders

Question 19

What can businesses be classified as according to their geographical spread?

Answer 19

Local, national or global/international

Question 20

What are the features of local businesses? Provide examples.

Answer 20

• restricted geographical spreads
• serve surrounding area and are frequently used by people who live nearby
• eg newsagents, corner stores, hairdressers
• tend to be small to medium in size

Question 21

What are the features of global/international businesses? (aka multinational corporation)

Answer 21

• a large company with branches in many different countries.
• Most of these conduct a large percentage of their business out of their home country.
• Eg Toyota, Westfields.

Question 22

What are the features of national businesses?

Answer 22

• operate within one country
• eg coles and woolworths

Question 23

What are the five main types of industry grouping or sectors?

Answer 23

1. Primary industry
2. Secondary industry
3. Tertiary industry
4. Quaternary industry
5. Quinary industry

Question 24

What is the primary industry? Give examples.

Answer 24

Includes businesses involved in the collection of natural resources.

Eg. types of farming, mining, fishing, grazing and forestry.

Essential as it provides all our food requirements. Approx 60% of all our exports come from these industries.

Question 25

What is the secondary industry? Give examples.

Answer 25

Includes business that take the output of firms in the primary sector (raw materials) and process it into a finished or semi-finished product.

Eg. iron ore, coal and limetsone are turned into steel - a semi-finished product that is then used to manufacture cars. Steel and car manufacturers are both examples of secondary industry businesses.

Question 26

What is the tertiary industry? Provide examples.

Answer 26

Involves people performing a vast range of services for other people.

Eg. retailers, dentists, solicitors, banks, health workers, transportation, restaurants.

Question 27

What is the quaternary industry? Provide example.

Answer 27

Includes services that involve the transfer and processing of information and knowledge.

Eg. telecommunication, property, computing, finance and education.

Question 28

What is the quinary industry?
Provide examples.

Answer 28

Includes all services that have traditionally been performed in the home.

Eg. hospitality, tourism, craft-based activities and childcare. Includes both paid and unpaid work.