unit 3 AOS 1 sac 1 Flashcards
Sole trader
- individual owner of a business
- entitled to keep all profits after tax
- unlimited liability (liable for all debts)
example - Plumber
sole trader
Advantages and Disadvantages
advantages
- simple and inexpensive to establish
- owner has total control
- minimal government regulation
Disadvantages
- unlimited liability
- harder to get finances
- reliant on knowledge and skill
Partnership
- owned between 2-50 people
- either partner is jointly liable for debts
- they have partnership agreements
example - accountants
two types partnership
general partnership
- partners have equal responsibility for the management of business
- unlimited liability
Limited partnership
- limited liability
- silent partners = business partners who are not involved in the day to day running of the business
Partnership
advantages and disadvantages
Advantages
- inexpensive and simple to start
- risk is shared
- minimal government regulations
Disadvantages
- unlimited liability
- liable for partners debts
- potential personality clashes
- business could be threatened by one partner leaving
Company
- seperate legal entity
- limited liability
- same rights as a natural person
- has perpetuity (on going life)
- must keep finical records for at least 7yrs
two types of Companies
private limited company
Public listed companies
Private limited companies
- sole traders/partnerships become private limited companies due to expansion and opportunity and gain protection
- can have up to 50 shareholders
- shares can only be sold if granted permission from owners
Private limited companies
Advantages/Disadvantages
Advantages
- limited liability
- business will still continue if shareholder/director leaves
- extra capital can be gained by selling shares
Disadvantages
- complex to start
- expensive establishment costs
- high degree of government control
Public listed companies
- an organisation listed on the Aus stock exchange
- anyone can buy shares
- run by a board of directors
- shareholders are not involved in the business
examples
BHP
Myer
Public listed companies
Advantages/disadvantages
Advantages
- limited liability
- separate legal entity
- business will still continue if owner leaves
disadvantages
- Highly complex to start
- high establishment costs
Social enterprise
- business that uses strategies to improve human wellbeing or the environment rather then maximising profits
Example
- thank you group
Government business enterprise
- operates in the public sector
- run by the government
- management must report regularly to shareholders
example
- Aus post
3 characteristics of GBE
- the government controls the business
- the business is engaged in commercial activities
- the business is a separate legal entity to the government department
Business objectives (5)
- Financial objective
- Market share
- Marketing objective
- Social objective
- Shareholder expectations
BO: Financial objective
- the desired financial performance of the business
including
- profit
- Improving market share
Profit
the difference between revenue and expenses
BO: market share
percentage of the market controlled by the business
Improving productivity
Improving operations and efficiency
BO: Market objectives
- demand for you good or service
- maximise the appeal to the most people
BO: Social objectives
- role of business in the community
- above and beyond your legal objectives
- equal opportunity and anti discrimination policies
BO: Shareholder expectations
shareholder
- owners of the company
- can own the whole part or shares in a business
Stakeholders
an individual or group that has a direct interest in the activities of the business
Characteristics of business stakeholders
people/groups who have a vested interest in the business
Macro environment
the conditions that a business operates in that they have no control over
- exchange rates
- political environment
Operating environment
The environment immediately external to a business to which it has close interaction with when conducting business
Internal environment
the areas of a business that have control over
Key stakeholders
Macro (2)
community/society
government
Key stakeholders
operating (5)
- creditors/banks
- trade unions
- customers
- suppliers
- competitors
Key stakeholders
internal (4)
- shareholders
- directors of a company/partnership
- Management
- employees
issues that stakeholders need to consider
- is the business conducting itself in a fair ethical manner
- is the business conducting itself in a social responsible way
Social responsibility
Requires a business to work on improving its positive impact on society and reduce its negative impact
Possible conflicts between stakeholders
employees and shareholders
employees require safe working conditions and reasonable wages
but
this reduces businesses profits and dividends to shareholders
Possible conflicts between stakeholders
Management and customers
management may try to maintain profits and high dividends to satisfy shareholders
but
will upset customers who want to pay reasonable prices for products