3.1.1 types of businesses

Sole Trader

• An unincorporated business owned by a single person.
• The owner finances and directs the business.
• It's the most common business type.
• Registration with ASIC is required if the business name differs from the owner's.
• The owner and business share the same legal entity.
• The owner has unlimited liability, meaning they are personally responsible for all business debts.
• Personal assets may be sold to cover business debts.

Advantages of a Sole Trader

• Inexpensive to establish.
• The owner retains all profits.
• There are no partner conflicts.
• The owner has complete control.

Disadvantages of a Sole Trader

• Unlimited liability puts personal assets at risk.
• It can result in an unbalanced work/life balance.
• The owner must supply the capital, creating financial risk.
• Raising capital can be difficult.

Partnerships

• Owned by 2-20 people (some professions may have more).
• Partners share profits based on their ownership percentage.
• Silent partners invest money but have no role in daily operations.
• A partnership agreement assigns roles, responsibilities, and profit distribution to avoid conflict.
• Like sole traders, partners have unlimited liability.

Advantages of Partnerships

• Shared workload.
• Diverse skills and experience.
• Easier to raise capital compared to sole traders.
• Easier to take time off.
• Lower startup costs.

Disadvantages of Partnerships

• Unlimited liability.
• Shared profits.
• Partners are 100% liable for each other's actions.

Similarities Between Sole Trader and Partnership

• Both aim to make a profit and achieve business goals.
• Both are relatively simple and inexpensive to establish.
• Both have unlimited liability.

Differences Between Sole Trader and Partnership

• A sole trader has one owner; a partnership has 2-20.
• Partnerships share profit and management responsibilities. Sole traders have full control and keep all profit.

Private Limited Companies

• Incorporated businesses with up to 50 shareholders.
• Shareholders are part-owners through share purchases.
• A director, a senior manager, makes decisions for the shareholders.
• Often starts as a small, family-owned business.
• Shareholders have limited liability, only liable to their investment amount.
• Indicated by "PTY LTD" after the company name.
• Not listed on the ASX.
• Restrictions on who can purchase shares.

Benefits of Private Limited Companies

• Limited liability protects personal assets.
• Greater access to finance through selling more shares.
• Company has perpetuity, allowing it to continue after the departure of directors or owners.

Limitations of Private Limited Companies

• A more complex structure to establish, requiring incorporation and registration with ASIC.
• Greater reporting requirements to ASIC.
• Restricted number of shareholders limit access to additional finance.

Examples of Private Limited Companies

• Cotton On
• Lorna Jane

Public Listed Companies

• Incorporated businesses that can sell shares to the public on the ASX.
• Shareholders receive dividends, a portion of company profits.
• "LTD" indicates limited liability.
• Operations are run by a board of directors (minimum 3) and a company secretary.
• Required to publish financial accounts in an annual report.
• Has a separate legal identity, offering limited liability.
• Capital appreciation refers to the increase in share value.

Benefits of Public Listed Companies

• Limited liability.
• Greater ability to raise capital through public share offerings, driving growth.
• Company has perpetuity.
• Benefits from an experienced board of directors and management team.

Limitations of Public Listed Companies

• More complex to establish due to incorporation.
• More expensive establishment and compliance costs.
• Significant reporting and compliance with government regulations, including annual reports and public profit reporting.

Examples of Public Listed Companies

• Coles
• Woolworths
• ANZ

Social Enterprises.

• Businesses that prioritize community benefit over shareholder profit.
• Sells goods and services to create a positive social or environmental impact.
• To qualify, it should primarily aim to fulfill a vision that benefits the community through its sales.
• Profit is secondary, though they often aim to make some.
• Relies on commercial operations for funding, supplemented by donations and government funding.
• Can adopt any business structure (sole trader, partnership, private limited company, etc.).
• At least 50% of profits go to a social cause.
• There are approximately 3500 social enterprises in Victoria, employing around 60,000 people.
• Not reliant on just charity or donations, they want to make good products and sell them

Examples of Social Enterprises

• Thankyou Soap
• Who Gives a Crap

Advantages of Social Enterprises

• Can attract government funding or community donations.
• Attract customers due to the primary aim of benefiting a social cause.

Disadvantages of Social Enterprises

• May struggle to attract investors due to limited profit distribution.
• Difficult to grow the business if funds are directed towards a social cause.

Examples of Social Causes Addressed by Social Enterprises

• Businesses benefiting a community or social cause.
• Employing people with disabilities who cannot do mainstream work.
• Benefiting the community in which they are located.

Government Business Enterprises (GBEs)

• Businesses owned by the government but managed separately.
• Aims to make a profit while delivering a community service.

Features of GBEs

• The government is the sole shareholder.
• Participate in commercial activities to make a profit while providing essential services.
• Implement government policies while delivering community services like communication, postal services, and energy security.
• Managed by a CEO and a board of directors.

Examples of GBEs

• Australia Post
• VicRoads
• National Broadband Network (NBN)

Benefits of GBEs

• Deliver community services where private sector businesses may be unwilling.
• Provide competition to businesses in the private sector, potentially improving services or reducing prices.

Limitations of GBEs

• Inefficiencies may arise from government interference or excessive regulations.
• Less accountability can lead to reduced productivity.

Explore sole trader and partnership business structures. Understand the advantages and disadvantages of each, including liability, capital raising, and control. Learn about ownership, profit sharing, and registration requirements.