Exam revision warmup exams Flashcards
(20 cards)
sole trader
A business owned and operated by one person
Partnership
An unincorporated business structure with a minimum of 2 and a maximum of 20 owners
Business entity
An organisation that exists separately to its owner in order to produce and sell goods and services
Incorporated
A business that has a separate legal existence apart from its owner(s)
disadvantages of sole trader
Unlimited liability – puts the owner’s personal assets at risk.
High financial risk since the owner supplies all finance.
High burden of management – can be difficult to find the time and expertise to manage all aspects of the business, such as marketing, sales, finance, customer service, etc.
advantages of sole trader
Inexpensive to set up – accessible to all.
Easy to establish due to fewer legal requirements.
Complete control over business decisions as there is only one owner – allows for quick decision making.
Only one owner – low risk of partner disputes and decisions can be made quickly.
advantages of partnerships
Workload and responsibilities are shared among partners
– can choose to take time off as needed.
Legal risks and debts are shared among partners.
Easier to raise capital when compared with a sole trader as there are multiple partners.
disadvantages of partnerships
Profits are shared among partners, so each partner may end up with only a small percentage.
Partners are liable for each other’s actions – if a partner signs a legally binding contract on behalf of the business, the other partners can be held legally responsible.
Unlimited liability – puts the partners’ personal assets at risk.
advantages of private limited companies
Limited liability – protects shareholders’ personal assets and only liable to the extent of the original investment.
Greater variety of expertise available as more individuals are involved in the company.
High growth potential – which can lead to more profits.
disadvantages of private limited companies
Complex to establish when compared with sole traders and partnerships as set-up processes require time and are costly.
Shares cannot be sold freely – could be more challenging to raise capital when compared to a public listed company.
Possibility of conflicts as there are multiple directors – can delay decision making and decrease productivity
advantages of public companies
Limited liability – protects shareholders’ personal assets.
Easier to raise large amounts of capital through share offers
High growth potential – which can lead to more profits.
disadvantages of public companies
Very high cost of formation when compared with private limited companies.
Complex to establish when compared with private limited companies as set-up processes require time and are costly.
Possibility of conflicts as there are multiple directors – can delay decision making and decrease productivity.
advantages of social Enteprises
May meet a need that commercial businesses have ignored, which opens up new markets.
Meeting a social need can increase profits and improve reputation – can lead to more support from the government.
Help disadvantaged communities improve their quality of life
disadvantages of social enteprises
High operating costs – may have additional costs that commercial businesses would not, such as providing accommodation for employees from disadvantaged backgrounds.
May struggle to balance social and financial objectives simultaneously, resulting in difficult decisions and compromises, such as letting employees go.
Difficult to measure success and business impact on society – can make it challenging to raise more funds and obtain loans from banks.
advantages of GBE
Deliver essential public services that meets society’s needs, including those of disadvantaged communities.
Provide services that private sector businesses would hesitate to invest in.
Can operate with some independence from the government.
disadvantages of GBE
Productivity may be lower when compared with private sector businesses as there tends to be poor accountability and transparency in the public sector.
Can be affected by government changes after elections – new regulations could be introduced that increase operational costs or reduce available funding.
Outline how limited liability protects the owner of a business.
Limited liability protects the owners of incorporated business such as companies. It limits the risk that the owner takes when starting a business by ensuring that the owner does not have to pay for the losses of the business with their personal finances.
Identify two reasons why a plumber might choose to commence business as a sole trader even though it does not limit liability to the business?
As a plumber can generally complete all aspects of the day-to-day business on their own, there is no need to enter into a partnership.
Sole traders are the cheapest and easiest legal business structure to set up and operate. The plumber can retain all profits and make all of the decisions regarding the business.
distinguish between public and private companies.
Unlike private companies, public companies are listed on the ASX. This allows public companies to source funding from the general public, but also means that they are required to publish more detailed financial statements, which can be costly.
Discuss why a private company might choose to go public and list its shares on the ASX.
By going public, the company can raise funding more easily, allowing it to expand its operations. Public companies do not have to approve shareholder purchases and can publicly advertise and sell their shares on the ASX. Despite this, public companies have more stringent requirements to publish accurate and detailed financial information on a regular basis. This should be taken into consideration by a company considering floating its shares on the ASX
