Types Of Businesses

Question 1

Legal structure

Answer 1

How a business is owned and this the legal responsibility for liabilities / debts - limited or unlimited liability
- sole trader
- partnership
- private company
- public company

Question 2

Limited liability

Answer 2

Owners are only liable for the amount of money put into the business

Question 3

Unlimited liability

Answer 3

Owner is not a separate legal entity from business, personal assets are at risk for company’s liabilities

Question 4

Incorporated (public/ private)

Answer 4

Separate entity from business owner and has natural rights, limited liability

Question 5

Unincorporated (sole trader / partnership )

Answer 5

Owner and business seen as the same legal entity, owner personally bears result of the business, unlimited liability

Question 6

Sole trader

Answer 6

One owner who operates the business under their own name or a registered business name ( RBN ) and Australia business number, unincorporated, unlimited liability

Question 7

Partnership

Answer 7

Business owned by 2 to 20 partners, partnership agreement to establish conditions, partners jointly liable for business debts, has an ABN, unincorporated, unlimited liability

Question 8

Private company (Pty Ltd)

Answer 8

Shareholders are legally separate from the business, between 1 and 50 shareholders who appoint directors to ran the company, operate under registend company have and ACN, registered with ASIC which issues certificate of incorporation

Question 9

Public company (limited or Ltd)

Answer 9

Unlimited number of shareholders, shares can be bought or sold on stock exchange, has an ACN, registered with ASIC which issues certificate of incorporation

Question 10

Advantages of sole trader

Answer 10

• inexpensive and simple to set up
• complete control/autonomy over the business
• minimal government regulation
• no legal requirement to disclose profits/losses, privacy
• owner receives all profit

Question 11

Disadvantages of sole trader

Answer 11

• Unlimited liability
• hard to get finance
• pay tax at marginal income tax rate which is higher than company tax rate (25%).

Question 12

Advantages of partnership

Answer 12

Inexpensive and simple to setup
Shared risk
Minimal government regulation
Offers broader access to capital, knowledge, skills, and experience

Question 13

Disadvantages of partnership

Answer 13

Unlimited liability
Liable for debts incurred by others
Disputes/personality clashes.
Taxation at personal income tax rates

Question 14

Advantages of private company

Answer 14

Limited liability
Extra capital can be obtained by issuing more shares
Separate legal existence
Existence is not threatened with death or removal of one of the directors.
Less tax paid

Question 15

Disadvantages of a private company

Answer 15

Higher degree of complexity and costs in establishment
High degree of government control, reporting requirements, compliance costs
Potential to disputes

Question 16

Advantages of public company

Answer 16

Limited liability
Easy access to capital by selling shares
Existence is not threatened with death or removal of one of the directors
Shares easily transferable
Les tax paid as paying company tax rate of 25%

Question 17

Disadvantages of public Company

Answer 17

Higher degree of complexity and costs in establishment
More government scrutiny, control, and compliance requirements
Need for more accountability and paperwork
Legal obligation to report financial situation publicly
Potential for disputes

Question 18

Legal entity

Answer 18

A company or organisation that has legal rights and responsibilities e.g. Contracts, debts

Question 19

Liability

Answer 19

The state of being legally responsible for something

Question 20

Shareholders

Answer 20

Part owners of a company who have invested funds in the company and are given shares to represent their ownership. Control of the company is shared between shareholders proportional to the number of shares they own

Question 21

Compliance

Answer 21

Effort required to follow relevant laws, policies, regulations

Question 22

Government enterprise

Answer 22

Incorporated business where the Aus government is the sole or controlling shareholder.gov owned and operated businesses that is a separate entity from government, all levels of government
Function
1. Community services/obligations
2. Positive externalities, economic benches
Private sector won’t provide as lack of resources or economic incentive

Hybrid organisation: profits, subsidies

Question 23

Factors influencing choice of legal structure

Answer 23

Changing business environments and the business itself may prompt changes in legal structure
- size
- ownership
- finance

Question 24

Size

Answer 24

Business grow organically over tine. As they do, their needs change and so too does the risk to owner. To lower risk, owner often change the legal structure of the business

Question 25

Ownership

Answer 25

Refers to the extent of control that the business owners would like to have over its operations ↑ control = private company, sole trader ↓ control= public company, partnership

Question 26

Finance

Question 27

Finance

Answer 27

As a business grows it requires more capital, continued borrowing can lead to reaching credit limits and increasing risk to owners, to decrease lability and increase access to equity capital, owner will often change to a company