Nature of a business: types of businesses

Question 1

how can a business be classified?

Answer 1

Size
Geographical spread
Industry sector
Legal structure

Question 2

sizes of businesses

Answer 2

micro business
- A business that operates on a very small scale.
- A micro business employs fewer than five people (including the owner).
Small
fewer than 20 employees
medium
20-199 employees
large
200+ employees

Question 3

what is geographical spread

Answer 3

Geographical spread is the presence of a business and the range of its products across a suburb, city, state or country or the globe.

Question 4

types of geographical spreads

Answer 4

Local – operate and sell to a small geographical region within Australia
pottery green

National – operate and sell throughout Australia but within national boundary
Woolworths, coles

Global –a large company that has branches in many different countries. For such companies, national borders do not represent trade barriers.
apple, Maccas

Question 5

what are the industry sectors?

(PS - TQQ)

Answer 5

Primary
Secondary
Tertiary
Quaternary
Quinary

Question 6

primary sector

Answer 6

Primary industry – involved in the growing, harvesting and extracting of raw materials.

Examples of these businesses include all types of farming, mining, fishing, grazing and forestry

Question 7

secondary sector

Answer 7

Secondary industry – processing of raw materials into finished products

examples
Car manufacturers

Question 8

tertiary sector

Answer 8

Tertiary industry – provision of services
(account for 75% of Australian economy).

Examples
retailers, banks, health workers

Question 9

quaternary sector

Answer 9

Quaternary – focus on providing information services (transfer and processing of information and knowledge)

Examples:
telecommunication, property, computing, finance and education

Question 10

quinary

Answer 10

Quinary – focus on providing domestic services (services that have traditionally been performed in the home).

Examples
hospitality, tourism, craft-based activities and childcare

Question 11

legal structures

Answer 11

sole trader
partnership
private company
public company

Question 12

what is a sole trader?

Answer 12

Are people who operate businesses on their own.
Receive all the profits and bear all the losses.

-Are responsible for everything
Own businesses which are the most common form of business, simple structure, low start-up costs
Have unlimited liability which means that personal assets may be used to repay business debts.

-The business is not a separate legal entity, it is unincorporated

Question 13

advantages of being a sole trader

Answer 13

low cost of entry
simplest form
complete control
less costly to operate
no partner disputes
owners right to keep all profits
no tax on profits only personal income

Question 14

disadvantages of being a sole trader

Answer 14

personal (unlimited) liability for business debts
end of the business when the owner dies
difficult to operate if sick
burden of management
need to carry all losses
need to perform a wide variety of tasks

Question 15

what is partnership

Answer 15

are businesses which have 2 or more owners.

Are relatively easy and cheap to establish.

Have unlimited liability.

Allow the sharing of business responsibilities.

Share all the profits and losses with partners.

Allows each partner to specialise in an area in which they have a particular skill.

Question 16

advantages of partnership

Answer 16

low start-up costs

shared responsibility and workload
on death of one partner, a business can keep going

pooled funds and talent

no taxes on business profit, only personal income

Question 17

disadvantages of partnership

Answer 17

personal unlimited liability

possibility for disputes

difficulty in finding suitable partner

Question 18

what is a company?

Answer 18

Become incorporated.

Have limited liability which means they are separate legal entities to their owners.

Can sue and be sued in their own legal name.

Do not cease to exist if one of the owners dies.

Have perpetual succession.

Question 19

advantages of a company

Answer 19

easier to attract the public

limited liability

perpetual seccession

Question 20

disadvantages of a company

Answer 20

cost of formation
double taxation

Question 21

what is a public company?

Answer 21

Public Companies are separate legal entities that can:

Own property in their own name.
Be liable for tax.

Sue and be sued.

Sell shares on the Australian Stock Exchange.

Attract shareholders by issuing a document known as a prospectus.

Distribute company profits through dividends.

Have limited liability.

Have perpetual succession.

Pay tax on the profits they make.

Question 22

what is a private company?

Answer 22

Are also known as Proprietary Limited companies.

Are the most common form of companies.

Have part owners called shareholders.
Have between 2 – 50 owners

Distribute profits to shareholders via dividends.

Allow for shares to be bought and sold without disrupting the day-to-day operations of the company.

Have perpetual succession.

Have relatively high start-up costs.

Cannot sell shares on the Australian stock exchange

Question 23

franchise

Answer 23

A franchise agreement allows an investor to buy an existing business’ name and distribute goods and services

Franchisor – a business allowing investors to use its name and products

Franchisee – business buying the rights to use the name and products

Question 24

advantages of franchise

Answer 24

Established business name
Existing customer base
Existing product range
Proven business model
Initial start-up support provided

Question 25

disadvantage of franchise

Answer 25

Expensive to buy into
Must pay a portion of profits to franchisor
Hard to make changes to goods and services
Business can be taken from you if you do not follow the franchise agreement

Question 26

what is unlimited liability?

Answer 26

the personal assets of the individual are at risk if the business experiences financial difficulties

(if the business is in a partnership then the debts will have to be paid meaning they may not be fairly split)

Question 27

what is limited liability

Answer 27

this means that the personal assets are NOT at risk if the business experiences financial difficulties

(the business will go bankrupt not the owner)