NATURE OF BUSINESS

Types of Businesses

TYPES OF BUSINESSES classification of business

size ndash small to medium enterprises (SMEs) large

local national global industry ndash primary secondary tertiary

quaternary quinary legal structure ndash sole trader partnership

private company public company government enterprise

factors influencing choice of legal structure ndash size ownership finance

SMErsquoSSmall to medium enterprises (SMEs) are the most common businesses in Australia These businesses play a key role in the provision of goods and services for thegeneral public provide employment foster innovation and productivity improvements supply inputs to larger businesses serve the interests of local communities and facilitate growth in the Australian economy

SIZE ndash SMALL TO MEDIUM ENTERPRISES (SMES) LARGEAccording to the ABS in 2001 a small business is defined as a business that employed less than 20 people including categories of1048576 non-employing businesses ndash sole proprietorship and partnership withoutemployees1048576 micro businesses ndash businesses employing less than 5 people including non-employing businesses1048576 other small businesses ndash businesses employing 5 or more people but less than 20 peopleA medium business is one that employs more than 20 but less than 200 peopleThus a large business is one that employs 200 or more people

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS CONTrsquoD

Local national global A local business is an organisation that

operates within one area National businesses operate across

Australia An international business is one whose

ownership and production is based in one country it exports the goods andor services it produces to other countries

A transnational business is a business that operates in many countries Its goods and services are produced and sold in a number of different countries

INDUSTRY - PRIMARY SECONDARY TERTIARY QUATERNARY QUINARY

Primary industry businesses are involved in the acquisition of raw materials

The secondary industry consists of businesses that use raw materials combined with labour and capital equipment to create finished products

The tertiary industry is made up of businesses whose prime function is related to providing a service

The quaternary sector consists of those businesses that provide information services to their customers

The quinary sector is concerned with businesses that provide services that are traditionally performed in the home

LEGAL STRUCTURE

Legal Structure

Sole Trader Partnershi

p

Private Company

Public Company

Company Limited by Guarantee

Cooperative

Trust

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

TYPES OF BUSINESSES classification of business

size ndash small to medium enterprises (SMEs) large

local national global industry ndash primary secondary tertiary

quaternary quinary legal structure ndash sole trader partnership

private company public company government enterprise

factors influencing choice of legal structure ndash size ownership finance

SMErsquoSSmall to medium enterprises (SMEs) are the most common businesses in Australia These businesses play a key role in the provision of goods and services for thegeneral public provide employment foster innovation and productivity improvements supply inputs to larger businesses serve the interests of local communities and facilitate growth in the Australian economy

SIZE ndash SMALL TO MEDIUM ENTERPRISES (SMES) LARGEAccording to the ABS in 2001 a small business is defined as a business that employed less than 20 people including categories of1048576 non-employing businesses ndash sole proprietorship and partnership withoutemployees1048576 micro businesses ndash businesses employing less than 5 people including non-employing businesses1048576 other small businesses ndash businesses employing 5 or more people but less than 20 peopleA medium business is one that employs more than 20 but less than 200 peopleThus a large business is one that employs 200 or more people

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS CONTrsquoD

Local national global A local business is an organisation that

operates within one area National businesses operate across

Australia An international business is one whose

ownership and production is based in one country it exports the goods andor services it produces to other countries

A transnational business is a business that operates in many countries Its goods and services are produced and sold in a number of different countries

INDUSTRY - PRIMARY SECONDARY TERTIARY QUATERNARY QUINARY

Primary industry businesses are involved in the acquisition of raw materials

The secondary industry consists of businesses that use raw materials combined with labour and capital equipment to create finished products

The tertiary industry is made up of businesses whose prime function is related to providing a service

The quaternary sector consists of those businesses that provide information services to their customers

The quinary sector is concerned with businesses that provide services that are traditionally performed in the home

LEGAL STRUCTURE

Legal Structure

Sole Trader Partnershi

p

Private Company

Public Company

Company Limited by Guarantee

Cooperative

Trust

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

SMErsquoSSmall to medium enterprises (SMEs) are the most common businesses in Australia These businesses play a key role in the provision of goods and services for thegeneral public provide employment foster innovation and productivity improvements supply inputs to larger businesses serve the interests of local communities and facilitate growth in the Australian economy

SIZE ndash SMALL TO MEDIUM ENTERPRISES (SMES) LARGEAccording to the ABS in 2001 a small business is defined as a business that employed less than 20 people including categories of1048576 non-employing businesses ndash sole proprietorship and partnership withoutemployees1048576 micro businesses ndash businesses employing less than 5 people including non-employing businesses1048576 other small businesses ndash businesses employing 5 or more people but less than 20 peopleA medium business is one that employs more than 20 but less than 200 peopleThus a large business is one that employs 200 or more people

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS CONTrsquoD

Local national global A local business is an organisation that

operates within one area National businesses operate across

Australia An international business is one whose

ownership and production is based in one country it exports the goods andor services it produces to other countries

A transnational business is a business that operates in many countries Its goods and services are produced and sold in a number of different countries

INDUSTRY - PRIMARY SECONDARY TERTIARY QUATERNARY QUINARY

Primary industry businesses are involved in the acquisition of raw materials

The secondary industry consists of businesses that use raw materials combined with labour and capital equipment to create finished products

The tertiary industry is made up of businesses whose prime function is related to providing a service

The quaternary sector consists of those businesses that provide information services to their customers

The quinary sector is concerned with businesses that provide services that are traditionally performed in the home

LEGAL STRUCTURE

Legal Structure

Sole Trader Partnershi

p

Private Company

Public Company

Company Limited by Guarantee

Cooperative

Trust

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

SIZE ndash SMALL TO MEDIUM ENTERPRISES (SMES) LARGEAccording to the ABS in 2001 a small business is defined as a business that employed less than 20 people including categories of1048576 non-employing businesses ndash sole proprietorship and partnership withoutemployees1048576 micro businesses ndash businesses employing less than 5 people including non-employing businesses1048576 other small businesses ndash businesses employing 5 or more people but less than 20 peopleA medium business is one that employs more than 20 but less than 200 peopleThus a large business is one that employs 200 or more people

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS CONTrsquoD

Local national global A local business is an organisation that

operates within one area National businesses operate across

Australia An international business is one whose

ownership and production is based in one country it exports the goods andor services it produces to other countries

A transnational business is a business that operates in many countries Its goods and services are produced and sold in a number of different countries

INDUSTRY - PRIMARY SECONDARY TERTIARY QUATERNARY QUINARY

Primary industry businesses are involved in the acquisition of raw materials

The secondary industry consists of businesses that use raw materials combined with labour and capital equipment to create finished products

The tertiary industry is made up of businesses whose prime function is related to providing a service

The quaternary sector consists of those businesses that provide information services to their customers

The quinary sector is concerned with businesses that provide services that are traditionally performed in the home

LEGAL STRUCTURE

Legal Structure

Sole Trader Partnershi

p

Private Company

Public Company

Company Limited by Guarantee

Cooperative

Trust

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS CONTrsquoD

Local national global A local business is an organisation that

operates within one area National businesses operate across

Australia An international business is one whose

ownership and production is based in one country it exports the goods andor services it produces to other countries

A transnational business is a business that operates in many countries Its goods and services are produced and sold in a number of different countries

INDUSTRY - PRIMARY SECONDARY TERTIARY QUATERNARY QUINARY

Primary industry businesses are involved in the acquisition of raw materials

The secondary industry consists of businesses that use raw materials combined with labour and capital equipment to create finished products

The tertiary industry is made up of businesses whose prime function is related to providing a service

The quaternary sector consists of those businesses that provide information services to their customers

The quinary sector is concerned with businesses that provide services that are traditionally performed in the home

LEGAL STRUCTURE

Legal Structure

Sole Trader Partnershi

p

Private Company

Public Company

Company Limited by Guarantee

Cooperative

Trust

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

SMALL MEDIUM AND LARGE BUSINESS CHARACTERISTICS CONTrsquoD

Local national global A local business is an organisation that

operates within one area National businesses operate across

Australia An international business is one whose

ownership and production is based in one country it exports the goods andor services it produces to other countries

A transnational business is a business that operates in many countries Its goods and services are produced and sold in a number of different countries

INDUSTRY - PRIMARY SECONDARY TERTIARY QUATERNARY QUINARY

Primary industry businesses are involved in the acquisition of raw materials

The secondary industry consists of businesses that use raw materials combined with labour and capital equipment to create finished products

The tertiary industry is made up of businesses whose prime function is related to providing a service

The quaternary sector consists of those businesses that provide information services to their customers

The quinary sector is concerned with businesses that provide services that are traditionally performed in the home

LEGAL STRUCTURE

Legal Structure

Sole Trader Partnershi

p

Private Company

Public Company

Company Limited by Guarantee

Cooperative

Trust

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

Local national global A local business is an organisation that

operates within one area National businesses operate across

Australia An international business is one whose

ownership and production is based in one country it exports the goods andor services it produces to other countries

A transnational business is a business that operates in many countries Its goods and services are produced and sold in a number of different countries

INDUSTRY - PRIMARY SECONDARY TERTIARY QUATERNARY QUINARY

Primary industry businesses are involved in the acquisition of raw materials

The secondary industry consists of businesses that use raw materials combined with labour and capital equipment to create finished products

The tertiary industry is made up of businesses whose prime function is related to providing a service

The quaternary sector consists of those businesses that provide information services to their customers

The quinary sector is concerned with businesses that provide services that are traditionally performed in the home

LEGAL STRUCTURE

Legal Structure

Sole Trader Partnershi

p

Private Company

Public Company

Company Limited by Guarantee

Cooperative

Trust

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

INDUSTRY - PRIMARY SECONDARY TERTIARY QUATERNARY QUINARY

Primary industry businesses are involved in the acquisition of raw materials

The secondary industry consists of businesses that use raw materials combined with labour and capital equipment to create finished products

The tertiary industry is made up of businesses whose prime function is related to providing a service

The quaternary sector consists of those businesses that provide information services to their customers

The quinary sector is concerned with businesses that provide services that are traditionally performed in the home

LEGAL STRUCTURE

Legal Structure

Sole Trader Partnershi

p

Private Company

Public Company

Company Limited by Guarantee

Cooperative

Trust

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

LEGAL STRUCTURE

Legal Structure

Sole Trader Partnershi

p

Private Company

Public Company

Company Limited by Guarantee

Cooperative

Trust

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE

Size ndash as a business grows it is likely it will move from either a sole trader or partnership to a company structure

Ownership ndash by altering the legal structure of a business the original owner is also likely to relinquish his or her full control over the business

Finance ndash generally smaller businesses may find it more difficult to access finance than do their larger counterparts Business growth is often accompanied by a greater demand for financial resources

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

SOLE TRADERAdvantages Low cost of entry Simplest form Complete control Less costly to operate No partnership disputes Ownerrsquos right to keep all

profits Less government

regulation No tax on profits only

personal incomeDisadvantages

Personal (unlimited) liability for business debts

End of business when owner dies

Difficult to operate if sick

Need to carry all losses Burden of management Need to perform a wide

variety of tasks Difficulty in raising

finance for expansion

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

PARTNERSHIPAdvantages Low start-up costs Less costly to operate

than a company Shared responsibility

and workload Pooled funds and talent Minimal government

regulation No tax on profits only

personal income On death of one partner

business can keep going

Disadvantages Personal unlimited

liability Liability for all debts

including partnerrsquos debts even before the partnership has begun

Possibility of disputes Difficulty in finding a

suitable partner Divided loyalty and

authority

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability

COMPANIES ndash LIMITED LIABILITY

Advantages Easier to attract public finance Limited liability ndash separate legal

entity Can transfer ownership easily Enjoys a long life ndash perpetual

succession Experienced management ndash board of

directors Greater spread of risk Company tax rate lower than

personal income tax rate Growth potential Recent legislation power allows a

company to have only one shareholder and one director

Disadvantages Cost of formation Double taxation ndash company and

personal Personal liability for business debts

of directors knew at the time that the business was unable to pay loans

Must publish a yearly annual report of audited accounts

Public disclosure ndash reporting of certain information

Becomes too large resulting in inefficiencies

• Nature of Business
• Types of Businesses
• SMErsquos
• Size ndash small to medium enterprises (SMEs) large
• Small Medium and Large Business Characteristics
• Small Medium and Large Business Characteristics contrsquod
• Local national global
• Industry - primary secondary tertiary quaternary quinary
• Legal structure
• Factors influencing choice of legal structure
• Sole Trader
• Partnership
• Companies ndash Limited Liability