Business Ownership Structures

Business Ownership Structures

• A sole trader business has one owner who runs the business, provides all finance, makes all decisions, and takes all responsibility.
• Sole traders can employ other people.

Advantages of Sole Trader Structure

• Easy to establish, requiring only business name registration with ASIC.
• Low cost of entry.
• No partner disputes.
• The owner keeps all profits.
• Less government regulation.

Disadvantages of Sole Trader Structure

• Unlimited liability, as the business is not a separate legal entity.
• The business ends when the owner dies.
• Difficult to raise capital.
• The owner needs to perform a wide variety of tasks
• A partnership consists of 2 to 20 shareholders who combine expertise and capital.
• Profits are divided after tax according to a legally binding partnership agreement.

Advantages of Partnership Structure

• Shared responsibility and workload.
• Pooled funds and expertise.
• Less costly to operate than a company.
• Low start-up cost.

Disadvantages of Partnership Structure

• Possibility of disputes.
• Divided loyalty and authority.
• Unlimited liability.
• Difficulty finding a suitable partner.
• A private limited company has at least one shareholder and a maximum of 50 non-employee shareholders.
• It is an incorporated business, meaning it's a separate legal entity from its owners.
• Shares are offered only to those the business wishes to have as part owners, and shareholders can only sell shares with approval from other directors.
• The words 'Proprietary Limited', abbreviated to 'Pty Ltd', must follow its name.

Advantages of Private Limited Company Structure

• Easier to attract finance.
• Limited liability due to its separate legal entity status.
• Growth potential.
• The company tax rate is lower than the personal income tax rate.
• A public listed company has at least one shareholder with no maximum, as shares are openly traded on the Australian Securities Exchange (ASX).
• Most are large and market a large range of products.

Disadvantages of Private Limited Company Structure

• Cost of formation.
• A maximum of 50 shareholders.
• Requires an annual report of audited accounts.
• The company is taxed on profits and dividends, and shareholders are taxed again on income from the company as personal income.

Advantages of Public Listed Company Structure

• Easy to attract finance through selling shares.
• Lower company tax rate compared to personal income tax rate.
• Limited liability.
• Easy to transfer ownership by selling shares.

Disadvantages of Public Listed Company Structure

• Required to abide by stringent compliance rules, and disclose corporate financial information.
• More costly than a private company.
• Directors may be held personally liable for the company's debts if they fail to meet their legal obligations.
• A social enterprise produces goods and services for the market but operates primarily to fulfil a social need.
• The majority of profits are reinvested back into the business or distributed to meet the community or environmental need.

Advantages of Social Enterprise Structure

• Meeting a social need can positively affect profit and market share.
• Can open up new markets that commercial businesses may not operate in.
• Tackles social problems and improves people’s opportunities.
• Improved employee involvement.

Disadvantages of Social Enterprise Structure

• Difficulty obtaining finance.
• Strict government regulation and auditing.
• Lack of public exposure & recognition.
• A government business enterprise (GBE) is owned and operated by the government.
• GBEs participate in commercial activities to make a profit and increase the value of their assets and returns to their shareholder (the government).
• A board of management or directors usually controls a GBE, with government input into the board.

Advantages of Government Business Enterprise Structure

• Provides healthy competition to businesses in the private sector.
• Able to carry out government policies, delivering community services in areas where private sector businesses might hesitate.
• Improves living standards for low socio-economic areas.

Disadvantages of Government Business Enterprise Structure

• Can have less accountability, resulting in less productivity.
• Strategic directions can change with changing governments.
• Potential for political interference.

Business Objectives

• Objectives are desired outcomes or specific results a business intends to achieve, providing direction and increasing the chances of success.
• Making a profit is central to most businesses, allowing for expansion and increased market share through advertising & other methods.
• Profit is what is left after business expenses have been deducted from money earned from sales.
• Market share is the proportion of total sales in a given market or industry controlled by a business, calculated for a specific period.
• Small market share gains often translate into large profits for businesses.
• SMBs usually measure market share against local competitors.
• Efficiency involves minimizing resources used and/or maximizing outputs generated from those inputs.
• Achieved by using up-to-date technology, innovative processes, highly skilled employees, or best quality components for the product.
• Improving efficiency decreases costs, which increases profits.
• Effectiveness refers to how successful a business has been in achieving its stated objectives
• A business should consider its effectiveness in relation to all objectives set, and should always look to improve.
• Many businesses exist to fulfil some sort of market need.
• Satisfying customer’s needs & wants will additionally increase profits by selling more products.
• Fulfilling a social need involves the production and/or selling of goods and services for the purpose of making the world a better place.
• Objectives related to fulfilling social needs might include improving human wellbeing, providing opportunities for local unemployed people, assisting disadvantaged people, or focusing on the environment.
• Shareholders expect a return on their investment (dividends) if the company is profitable.
• Shareholders also make a capital gain if the value of a company’s shares increases.
• Shareholder expectations are met if profit gained is returned to them or the value of shares increases.

Stakeholders

• A stakeholder is any group or individual with a vested interest in a business's operations.
• Owners are the shareholders in the business.
  • They want the business to make profits.
  • They may depend on the success of the business for their income or wealth.
• Managers are responsible for running a profitable or successful business that achieves its objectives.
  • They want the business to make profits.
  • They want to be remunerated for their labour.
  • They want to meet shareholder expectations.
  • They value job security.
• Employees work for the business and are involved in the manufacture or production of the goods or services that the business sells.
  • They expect to be paid fairly, trained properly, and treated ethically.
  • They value job security.
• Customers purchase goods or services from a business.
  • They expect good quality products at a fair price.
  • They want products to be made in a socially responsible manner.
• Suppliers provide resources to a business that will be used in its production process, including raw materials, equipment, machinery, finance, and information.
  • They expect strong relationships, and to be paid promptly and in full.
• The general community is the local group that is impacted by the business.
  • They expect businesses to give back to the community, provide employment, and minimize environmental impact.

Management Styles

• Management style refers to the behaviour and attitude of a manager during decision-making and planning.
• An autocratic management style is one where the manager tends to make all the decisions, dictating work methods, limiting employee knowledge and frequently checking on employee performance.
  • Effective in a time of crisis, when immediate compliance with rules or procedures is needed, or in meeting an unexpected deadline, when speed is important, or when team members lack skills and knowledge.

Advantages of Autocratic Style:

• Directions and procedures are clearly defined.
• Roles & procedures detailed and precise, making monitoring performance easy.
• Time efficient.
• Problems are solved quickly.

Disadvantages of Autocratic Style:

• No employee involvement leads to bad corporate culture.
• Conflict may arise between management & employees.
• Ideas & knowledge are not utilized.
• Employees have little chance to develop their skills.
• A persuasive management style is one where the manager attempts to convince employees that management’s way is the right way.
  • Authority and control remain centralised with senior management.
  • Managers attempt to make employees accept objectives and work to certain plans and procedures.
  • Communication is one-way.

Advantages of Persuasive Style:

• Managers can gain some trust and support through persuasion.
• Workers believing that their feelings are being considered may approach tasks, and the business as a whole, more positively.
• Instructions and explanations remain clear and constant.

Disadvantages of Persuasive Style:

• Communication is still poor and limited to a top-to-bottom, one-way system.
• Employees remain frustrated because they are denied full participation in the decision-making process.
• A consultative management style is one where the manager recognises the importance of good personal relationships among employees and consults with staff on certain issues before making a decision.
  • The consultative manager seeks the opinions of employees, holds information-sharing meetings and recognises good performance.
  • This implies a two-way communication process.

Advantages of Consultative Style:

• Getting knowledge from employees allows for a greater variety of ideas and should improve the quality of management decisions.
• Employees begin to have some ownership of the way in which the business is run, so they take more of an interest in it. This is reflected in their levels of motivation and commitment, which increase substantially.
• Improved job satisfaction of employees.

Disadvantages of Consultative Style:

• The time taken to consult all the relevant employees can slow the entire process.
• When a number of ideas are shared, some are bound to be ignored or overlooked in the final decision. This may cause conflict or resentment.
• Some issues to be decided on are simply not suitable for a widespread consultation process.
• Employees may not have the experience to contribute properly.
• A participative management style is one where the manager not only consults with employees, but also shares decision-making authority with subordinates.
  • Managers recognise the strengths and abilities of employees and actively involve them in all the stages of the decision-making process.
  • There is staff participation and ownership of decision-making, this is a decentralised management style.
  • The participative management style makes use of two-way communication, as staff are encouraged to provide ideas and feedback.

Advantages of Participative Style:

• Employees are more likely to accept management decisions.
• Motivation and job satisfaction are optimal, because employees feel they have played an active role in allocating tasks and implementing actions to meet objectives.
• Employees have a greater opportunity to acquire more skills.
• There is a high level of trust, often resulting in improved employee performance.

Disadvantages of Participative Style:

• Reaching decisions and introducing tasks can be time-consuming when differing views have to be considered.
• The role of management, and the control of the manager, may be weakened and undermined, with employees given too much power in some cases.
• The quality of decisions may also suffer because compromises are made, rather than decisive, clear directions given.
• A laissez-faire management style is one where employees are responsible for workplace operations.
  • Management has no central role or decision-making power.
  • Management will set objectives and is still accountable for the overall performance of the department or business, but employees take responsibility for implementing the means of achieving the objectives.
  • Employees are responsible for their decisions and accountable for the results

Advantages of Laissez-Faire Style:

• Employees feel a sense of ownership, which can promote outstanding results.
• There is continual encouragement of creativity, which is conducive to a dynamic working environment.
• Communication is completely open, and ideas are both discussed and shared.

Disadvantages of Laissez-Faire Style:

• There is a complete loss of control by management. No control or direction means there is potential for misuse of the business’s resources, including time and money.
• This style can breed personal conflicts, where individuals do not cooperate or wish to implement only their own ideas. In these cases, management is not there to direct or negotiate.
• The focus on meeting business objectives can be easily eroded.

Factors Influencing Management Style

• The most appropriate management style chosen by a manager for any given situation will be influenced by;
• When a business undergoes change, the manager may need to make decisions quickly and so may adopt an autocratic style or use a more consultative style with experienced employees.
• An impending deadline might mean that an autocratic style is appropriate, whereas an extended timeframe might lend itself to a manager making use of a more participative style.
• An experienced workplace might necessitate the use of an autocratic style, whereas a team of experienced staff would indicate that a consultative or participative style would be appropriate.
• A manager’s personality, experience, values, beliefs, and skills might mean that they prefer to use a particular management style.

Management Skills

• Management skills are the abilities or competencies that managers use to help them to complete the tasks that are necessary for the achievement of business objectives.
• Effective managers possess a range of specific management skills and use these skills in a number of management situations.
• Communication is the transfer of information from a sender to a receiver, occurring both within and outside the business.
  • Effective communication — clear, articulate, and concise — helps maintain good relationships.
• Delegation occurs when the authority and responsibility to carry out specific activities is transferred from a manager to an employee.
  • The manager delegating the task remains accountable for the outcome of the delegated work, but allows the employee or employees to make their own decisions.
  • Clear communication must be used when passing on instructions about what needs to be done.
• Planning is the ability to define business objectives and decide on the methods or strategies to achieve them.
  • Strategic planning: 2-5 years.
  • Tactical planning: 1-2 years.
  • Operational planning: Short-term from day-to-day.
• The Planning Process:
  • Step 1: Define the objective and where management believe the business is headed.
  • Step 2: Analyse the environment using SWOT analysis.
  • Step 3: Develop alternative strategies and then decide to put one into action.
  • Step 4: Implement the agreed upon strategy.
  • Step 5: Monitor and seek feedback on the implemented strategy.
    • If business objectives are not met, the planning process would have to be repeated.
    • Any plan formed should be a living document, regularly reviewed and revised if necessary.
• Leadership is the ability to influence or motivate people to work towards the achievement of business objectives.
  • Effective leadership is vital to the success of a business.
• Decision-making involves identifying available options and then choosing one course of action from the alternatives.
  • It also requires a manager to adequately assess the risk involved if the decision is implemented.
• Interpersonal skills refer to management’s ability to deal or liaise with people and build positive relationships with staff.
  • A manager who is able to identify and recognise how other people see things and then make use of these views in a logical and understanding manner is most likely to be effective in achieving objectives.
• Management styles and management skills are closely linked.
  • The type of management style that a manager selects will determine the range and degree of skills they use.
  • If a manager assesses a situation and chooses to use a participative style, then clear communicating, delegating, planning, leading and interpersonal skills will be important.
  • An autocratic manager would not have much use for delegating or interpersonal skills, and they would utilise communicating, planning and leading very differently to a manager using the participative style.

Corporate Culture

• Corporate culture refers to the shared values, beliefs of an organisation, which can influence the actions and decision-making styles of managers and employees.
• Official corporate culture is revealed in the policies, objectives or slogans of a business.
• Real corporate culture is seen in the unwritten or informal rules that guide how people in the business behave, such as the way staff dress, the language staff use, and the way that staff treat each other and customers.
• Elements of corporate culture:
  • Values and practices are the way things are done in the business, for example honesty, hard work, teamwork and quality customer service.
  • Symbols are the events or objects that are established to represent something the business believes to be important.
  • Rituals, rites, and celebrations are the routine behavioural patterns in a business’s everyday life.
  • Heroes, or champions, are the business’s successful employees who reflect its values and, therefore, act as an example for others.