Revision
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RevisionYear 11 Mid Year Exam
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Types of BusinessesBusinesses are classified in a number of ways
Size
Geographical spread
Industry sector
Legal Structure
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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?
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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?
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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?
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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.
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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?
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Why do businesses expand from local
national global
Business
Expansion
Increase in sales
Global consume
rs
Desire to increase profits
Increase in market share
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Industry SectorINDUSTRY SECTOR
TERTIARYSECONDARYPRIMARY
QUINARYQUARTERNARY
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Legal StructureCLASSIFICATION BY LEGAL STRUCTURE
SOLE TRADER PUBLIC COMPANY
PRIVATE COMPANYPARTNERSHIP
Unincorporated
Incorporated
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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
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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
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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
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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
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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