types of businesses Flashcards
(21 cards)
unlimited liability
business owners are fully responsible by law if their business fails to the extent of their personal assets
limited liability
business owners are only personally responsible by law to the level of their original investment in the business
sole traders
a business owned by one person who is entitled to keep all profits after tax has been paid but is liable for all losses
- private sector
- unlimited liability
advantages of sole traders
- owner has total control over business operations
- owner keeps all net profits
- minimal government regulation
- simple and inexpensive to set up
disadvantages of sole traders
- unlimited liability for owner (personally responsible for all debts)
- business is reliant on owners’ knowledge and skills
- burden of managing entire business, taking on 100% financial risk
- harder for owner to get finance for the business
partnership
a business that is owned by 2-20 people
- private sector
- unlimited liability
- may have silent partners (investors that don’t help run business)
advantages of partnerships
- risk and workload is shared between partners
- greater pool of experience to make stronger decisions
- increase access to funds
- minimal government regulation
- simple and inexpensive to setup
disadvantages of partnerships
- unlimited liability for all partners
- potential for disputes and personality clashes
- may be difficult to remove a partner
company
- a business that has gone through the process of incorporation
- this means the owners of a company purchase shares which give them an ownership portion
- owners of a company are called shareholders
- a company is a separate legal entity to the owners, so the owners have limited liability
- companies have perpetuity
private limited company
an incorporated business owned by 1-50 shareholders, eg. linfox
- must have a director who makes decisions on behalf of shareholders
- shares are only traded with the permission of other shareholders
- pty ltd
advantages of private limited companies
- limited liability
- extra capital can be obtained by shares (up to 50)
- has perpetuity
- potential tax benefits
disadvantages of private limited companies
- highly complex structure and expensive to establish
- more reporting requirements to owners and government
- more difficult to sell shares and raise funds (compared to public company)
public listed company
an incorporated business that is owned by shareholders and has no upper limit to the number of shareholders; s hares are openly traded on the australian securities exchange (asx), eg. woolworths
- required to notify the public of their performance
advantages of public listed companies
- limited liability
- ability to gain extra capital through selling shares
- easy transfer ship of ownership by selling or buying shares on asx
- perpetuity
disadvantages of public listed companies
- highly complex structure and expensive to establish
- needs more accountability and compliance paperwork such as producing annual report and audited accounts
- no control over who owns the company as shares are freely traded
social enterprise
private sector business that distributes surplus funds to benefit the community rather than individual shareholders, eg. thankyou
- aims to achieve a social, cultural, community or environmental outcome
- run like business
advantages of social enterprises
may attract customers due to them believing in the social cause
- improved morale within the business as employees value the work they are doing
disadvantages of social enterprises
- difficult to obtain finances to start the business
- difficult to focus on both financial and social objectives and balancing the two
- may need to consistently work with tight budgets, making it difficult to compete
government business enterprise (gbe)
a business that is owned by the government. gbes seek to run controlling costs and selling their goods and services at a price to cover costs, eg. auspost
- public sector
- generally controlled by a board of directors as well as two shareholder ministers
- profits are returned to the government
advantages of government business enterprises
- able to offer services to the community that other businesses may not find financially desirable
- provides healthy competition to the market, benefitting customers
disadvantages of government business enterprises
- strategic directions can change when the government changes which can be difficult for the employees
- may be inefficiencies caused by government’s strict regulations and processes, eg. getting major decisions approved
