Revision

RevisionYear 11 Mid Year Exam

Types of BusinessesBusinesses are classified in a number of ways

Size

Geographical spread

Industry sector

Legal Structure

SizeSmall business-

Less than 20 employeesIndependently owned and operated by one or two peopleWhat kind of ownership is most common for a small business?Owner responsible for majority of decision making. Quick implementation of changesHow are these businesses usually financed?Small market share, local area, not dominant in industryExamples?

Medium businesses-20-199 employeesOwned and operated by a few people and/or private share holdersPartnership or private companyOwner basically responsible for majority of decisions if partnership; more complicated decisions, with slower implementation if a private company.How is a medium sized business financed?Medium market share due to dominance within geographic region. Some market dominence.Examples?

Large businesses-200+ employeesUsually owned by thousands of public shareholdersMost often a public company (listed on the ASX)Complex decision making and various levels of management fronted by a CEO or director/s, followed by senior and middle management. Possibly slow implementation of decision making and change due to layers of management.Many sources of finance including; cash reserves, retained profit, sale of shares and loans from domestic and foreign institutionsLarge market share, particularly for multinational corporations that dominate the markets of many countriesExamples?

Geographical SpreadLocal businesses-

Serves the surrounding area, with a restricted geographical spread.Often only used by consumers who live nearby.

National businesses-As a business grows the area its serves also increases.A small local business can sometimes grow exponentially to become a national business, operating country wide- within a single country.

Global businesses-Can be further divided into multi-national and transnational businessesUsually has a base in a home country while operating partially or wholly owned businesses in other countries.For these companies national borders do not represent barriers to trade, they are simply lines on a map.Why has the number of global businesses increased in the last 20 years?

Why do businesses expand from local

national global

Business

Expansion

Increase in sales

Global consume

rs

Desire to increase profits

Increase in market share

Industry SectorINDUSTRY SECTOR

TERTIARYSECONDARYPRIMARY

QUINARYQUARTERNARY

Legal StructureCLASSIFICATION BY LEGAL STRUCTURE

SOLE TRADER PUBLIC COMPANY

PRIVATE COMPANYPARTNERSHIP

Unincorporated

Incorporated

Business StructureSole trader

• Low cost of entry• Simplest form• Complete control• Less costly to

operate• Owners right to

keep all profits• Less government

regulation• No tax on profit,

only personal income

• Personal (unlimited) liability for business debts

• End of business when owner dies

• Difficult to operate if sick

• Need to carry all loses

• Burden of management

• Need to perform a vide variety of tasks

• Difficult to raise finance for expansion

ADVANTAGES

DISADVANTAGES

Partnerships

• Low start up costs

• Less costly to operate than a company

• Pooled funds and talent

• Minimal government regulation

• No taxes on profit, only personal income

• On death of one partner, business can continue

• Personal unlimited liablity

• Liability for all debts, including partners debts even before partnership began.

• Possibility of disputes

• Divided loyalty and authority

DISADVANTAGES

ADVANTAGES

CompaniesWhat is meant by the term limited liability?

Private company vs. Public companies• The most common type of

company in Australia.

• Has between two and 50 private shareholders

• Small to medium family businesses

• Shareholders can only sell their shares if approved by other directors

• Listed on the ASX• Large companies• At least one

shareholder with no maximum number

• No restrictions on the transfer of shares

• Must issue a prospectus when selling first shares

• A minimum of three directors

• The word ‘Limited’ or ‘Ltd’

• Publish an annual report

Government Enterprises-Government owned and operated. Provide essential community services such as health, education, roads and welfare.Wave of privatisation in the early 1980’s- the reason for this is that economic efficiency is increased by transferring enterprises away from the public sector into the private sector

Franchising- A _________ means buying the rights from another business to distribute its product under its name.A _________is an individual or business that grants a franchiseA __________ is an individual or business that purchases the franchise.

Franchisee Franchise Franchisor

Factors influencing legal structure

Three factors1. Size of the business

2. Ownership structure

3. Finances needed

WHY?

Give an example of a company the started as a sole trader or partnership which is now a public company