types of business ownerships

Question 1

sole trader

Answer 1

a person who runs and owns a business as an individual

Question 2

profit - sole trader

Answer 2

all profit and losses belong to the sole trader

Question 3

tax - sole trader

Answer 3

profit is treated as the personal income of a sole trader and must be included in the owners personal income tax return - following tax brackets

Question 4

liability - sole trader

Answer 4

liable for any debts or damage caused by business

Question 5

unlimited liability:

Answer 5

owners personal items can be sold to pay for business debts and damage

Question 6

limited liability

Answer 6

owners person items can not be sold to pay for debts and damages towards the business

Question 7

advantages of a sole trader

Answer 7

• quick cheap and easy to set up
• owner has complete decision making control
• owner can choose their work hours
• owner receives all profit

Question 8

disadvantages of sole trader

Answer 8

limited lifespan
limited access to money
unlimited liability
owner may have to work long hours and not take holidays and no one else can continue their work

Question 9

seperate legal entity

Answer 9

when you or anyone else in the company are seperate from your business for legal purposes

Question 10

not a seperate legal entity

Answer 10

when you or anyone else in the company are not seperate from the business

Question 11

partnership

Answer 11

two or more (up to 20 people) who operate and business to make profit

Question 12

general partnership

Answer 12

partners are equally responsible for the management of the business and each has ‘unlimited liability’ for partnership debts

Question 13

limited partnership

Answer 13

one or more partners have ‘unlimited liability’ and one or more partners have ‘limited liability’

Question 14

profits of partnership

Answer 14

split equally between partners (general partnership) or is laid down in a ‘partnership agreement’ if one is written

Question 15

tax - partnership

Answer 15

owners are liable for any taxes.

Question 16

advantages of partnership

Answer 16

quick and easy to set up
greater access to finance because more people are involved
more people share any losses and responsibilities
may be more tax effective as profit gets shared among owners

Question 17

disadvantages of partnership

Answer 17

profit sharing
limited life span
disagreements
limited finance
unlimited liability

Question 18

small proprietary company

Answer 18

private business structure owned by shareholders.

Question 19

profits of SPC

Answer 19

any profit not reinvested into the company are distributed to shareholders as dividends

Question 20

liability of SPC

Answer 20

business is liable for all debts and damages

Question 21

tax for SPC

Answer 21

the business is liable for any taxes. SPC must have their own tax file numbers and lodge their own tax returns

Question 22

advantages for SPC

Answer 22

ability to raise money from shareholders therefore greater access to funds for running the business
owners are entitles to dividends
shareholders are not liable for company’s debts
infinite lifespan
easy to transfer ownership
pays a lower tax than individuals

Question 23

disadvantages of SPC

Answer 23

more expensive to establish
greater reporting requirements than a sole trader or partnership
limits the shareholders say in the companys running

Question 24

not for profit organisations (NFPO’s)

Answer 24

an organisation that runs a business like manner but its not operating for financial gain or profit

Question 25

profits of NFPO

Answer 25

they can still make profit but all profit must be applied to the businesses purpose

Question 27

tax

Answer 27

if approved by the ATO NFPOS can be exempt from taxes

Question 28

advantages of NFPO

Answer 28

assists the community via funds, volunteer work and paid work
tax exempt if approved by ATO
limited liability under the law when it comes to debts

Question 29

disadvantages for NFPO

Answer 29

no retained profit for owners
involves lots of time and effort to start and operate
must keep detailed financial records and provide these to the ATO

Question 30

franchises

Answer 30

allows a business to operate under another businesses brand

Question 31

franchisee

Answer 31

a sole trader, partnership or SPC that enters into an agreement with a franchiser to sell their products or services for a specified period in return for ongoing fees or royalties

Question 32

franchisor

Answer 32

sells the rights and enters into an agreement with a franchisee for a set period

Question 33

profits for a franchise

Answer 33

distributed to owners depends upon the type of business ownerships used

Question 34

liability for a franchise

Answer 34

depends on the type of business ownerships used

Question 35

tax of a franchise

Answer 35

depends on the type of business ownerships used

Question 36

advantages for a franchise

Answer 36

well established operating procedures
pre established brand and customer base
franchisor support for marketing campaigns
some franchisors provide loans
franchisors get access to the trade secrets
less risk than starting a business from scratch
obtaining finance from lenders may be easier due to an established market presense