Unit 3: AOS 1 Flashcards
(70 cards)
What is a business?
A business is a structured organisation which is involved in buying and selling of goods/services to make a profit
Private Sector
Businesses owned by private individuals, groups or institutions
Public Sector
Businesses owned by the government- public schools, hospitals, Australia Post.
Centralised
Rely on one individual to make decisions and provide direction for the company. Often used by small businesses.
Decentralised
Several individuals responsible for making business decisions and running the business. Decentralised organisations rely on a team environment at different levels in the business.
Market Share
Proportion or percentage of the market (and total sales) controlled by the business. If market share increases, the business has a greater percentage of the market and sales.
Limited Liability
Entities are only liable for the debts and obligations of the organisation to the extent of their investments, and enjoy protection of personal assets.
Unlimited Liability
The business as a whole has a legal responsibility to disburse funds in compliance with third party contractual arrangements, court judgments and operating expenses.
Sole Trader
Individual owner who is liable for all losses eg. plumber, mechanic
Positives and Negatives of a Sole Trader
Positives: receive all profit after tax, total control, simple structure
Negatives: unlimited liability (eg. death), harder to get finances
Partnership
Owned by 2-50 people. Each partner is jointly liable. Most partnerships have a partnership agreement Eg. Accountants, Pub, Cafe
Positives and Negatives of a Partnership
Positives: risk is shared, shared workload, still simple to set up
Negatives: unlimited liability, liable for debts incurred by other parties, personal clashes
Establishing a company
- A separate legal entity
- A company must be formed in accordance with the Corporations Act 2001, and registered with ASIC as a separate legal entity
- Board of directors ‘runs’ the company on behalf of the shareholders
When you establish a company
- It has the same rights as a natural person
- Has perpetuity (on going life)
- Can incur debt
- Can sue and be sued
- Has shareholders who have limited liability (limited liability = shareholders are only liable to the value of their shareholders)
- Has company officers and directors
- Must be registered for GST
- Must lodge a tax return
- Must keep financial records for at least seven years
Private Limited Company
- Many sole traders or partnerships become Pty Ltd companies, due to expansion and the opportunity to gain protection by limiting liability
- Can have up to 50 shareholders
- Shares can only be traded with the permission of the other shareholders
Positives and Negatives of a Company
Positives: Limited liability, extra capital can be obtained by issuing more shares, separate legal entity, business will still continue if a shareholder/director leaves or dies
Negatives: complex to start, expensive establishment costs, higher degree of government control and reporting requirements, additional compliance cost
Public Company
- An organisation listed on the Australian stock exchange
- Any individual can buy shares in a public company
- Run by a board of directors
- Answerable to shareholders
- Shareholders receive a dividend for their investment if profit results are favourable
- Shareholders are not involved in the day to day running of the business
Positives and Negatives of a Public Company
Positives: Limited liability,
Able to get more capital by selling more shares , Separate legal entity , Business will still continue if a shareholder/director leaves or dies
Negatives: High complex structure, High establishment costs, Needs accountability and compliance paperwork, Extra compliance cost
Social Enterprises
- A business that uses strategies to improve human well being or the environment rather than maximise PROFIT for its owners/shareholders
- Goal= to achieve social, cultural, community and environmental outcomes and earn revenue
- They aim to make a profit to help solve an environmental or social problem
- Limited liability
Government Business Enterprises & the 3 Characteristics
- Operates in public sector (run by the government)
- Management of a GBE runs the business, but they must report regularly to the shareholder, parliament and the public
3 Characteristics of GBE
1. Government controls the business
2. Business is engaged in commercial activities
3. Business is a separate legal entity to the government department
Types of Business Objectives
- Financial Objectives
- Marketing Objectives
- Social Objectives
- Meeting shareholder expectations
Financial Objectives
- -> The desired financial performance of the business
1. Profit: the difference between revenue and expenses, can be achieved by advertising etc.
2. Growing sales: open new stores, sell product/services overseas
3. Growing Sales: Proportion or percentage of the market (and total sales) controlled by the business
4. Increasing Productivity: improving operational efficiencies
Marketing Objectives
- Creation of demand for your good or service
- Maximise the appeal of your good or service to most people possible
Social Objectives
- Role of the business in the community
- Above and beyond your legal obligations
- The Body Shop, Nespresso and Thankyou group fulfill social objectives
- Social Objectives can also be achieved via workplace policies - equal opportunity policies, anti discrimination policies etc.