TYPES OF BUSINESS

OWNERSHIP
 BUSINESS STRUCTURES

• There are many different business structures to

choose from when starting or growing a business.
Each type of business has different features and
rules, making them more or less suitable to different
business owners.
• Entrepreneurs need to understand the advantages
and disadvantages of various types of businesses so
that they can choose the one that best suits their
needs.
• Please complete your matrix with as much
detail as possible. All definitions in blue boxes
need to be written into your glossaries.
 SOLE TRADERS
(PROPRIETORSHIP)
• The easiest and most popular form of business
ownership is the sole trader.
• Proprietorships are the most common legal
business structure in Australia and are favoured
by most small business owners since they are
cheap and easy to set up.
sole
soletrader
trader
(proprietorship)
(proprietorship)
aabusiness
businessthat
thatisisowned
ownedand
and
operated by one person
operated by one person
 SOLE TRADERS
(PROPRIETORSHIP)
Are the most common legal business structure in
Australia
The owner of a sole proprietorship:
receives the profits,
incurs any losses, and
is liable for the debts of the business.

liability
liabilityprotection
protection
insurance
insuranceagainst
againstthe
thedebts
debts
and actions of a business
and actions of a business
 ADVANTAGES

• Sole proprietorship is easy and inexpensive to create and

disband.

The owner has complete authority over all business

activities.

It is the least regulated form of business ownership.

The business pays no taxes; income is taxed at the personal

rate of the owner (sometimes a disadvantage if that rate is
higher than company tax rates).
 DISADVANTAGES

The owner has full responsibility for any liabilities arising

out of the business. This can extend to the owner’s
personal assets to pay business debts.

Raising capital is more difficult.

The business is totally reliant on the skills and abilities of the

owner.

The death of owner dissolves the business unless there is a

will to the contrary.
 MAIN DISADVANTAGE (EXPLAINED)

The biggest disadvantage of a sole trader is financial.

•In this form of business ownership, the owner has unlimited
liability.

unlimited
unlimitedliability
liability
full
fullresponsibility
responsibilityfor
forall
alldebts
debts
and
andactions
actionsofofaabusiness
business
 PARTNERSHIP

• A partnership are formed when two to twenty people

agree to run a business together.
• They can then draw on the skills, knowledge, and financial
resources of more than one person.
• The details of what each partner is responsible for and
entitled to are often specified in a partnership agreement.

partnership
partnership
ananunincorporated
unincorporatedbusiness
business
with
with two to 20 ownerswho
two to 20 owners who
share
sharethethedecisions,
decisions,assets,
assets,
liabilities, and profits
liabilities, and profits
 PARTNERSHIP
Partnerships allow
•the owners to share the responsibility of running a
business, it gives them access to different skills,
shares the effort of running the business
•divides the financial rewards and risks between
the different partners.
•Partners can be held accountable for the failures
of the business and any bad decisions made by
other partners on behalf of the business.
•This puts their personal assets at risk
 PARTNERSHIP

Partnerships are inexpensive to create.

General partners have complete control.

Partners can share ideas.

Partners can share costs.

 PARTNERSHIP

It is difficult to dissolve one partner’s interest without

dissolving the partnership.

There may be personality conflicts.

The liability of the partners is unlimited, and extends to

their private property and Partnership assets.

Each partner is responsible for the other partner’s

share of the business liability
 CORPORATIONS (COMPANIES)

Corporation, also known as companies, are businesses

that are considered separate legal entities to their
owners.
Companies are more expensive and trickier to set up
and maintain than proprietorships or partnerships, but
they protect the owner(s) by providing them with
This means
limited that if the
liability
company fails, the owner corporation
corporation
will not be forced to sell aabusiness
businessthat
thatisisregistered
registered
their personal assets to by
byaastate
stateand
andoperates
operatesapart
apart
from its owners; it issues
from its owners; it issues
pay the debts of the shares
sharesofofstock
stockand
andlives
liveson
on
company in most after the owners have
after the owners have soldsold
circumstances. their
theirinterest
interestor
orpassed
passedaway
away
 CORPORATIONS (COMPANIES)

The owners of a company are called shareholders since

they own a share of the company and are entitled to
that portion of the company’s profits.

There are 2 types of companies: Public company

and a Private Company.
•Private Companies
•A Public Company

shareholders
shareholders
the
theowners
ownersofofaacorporation
corporation
 PRIVATE COMPANIES
Private
PrivateCompanies
Companies
an
anentity
entitythat
thatpays
paystaxes
taxeson
on
earnings; its shareholders pay
earnings; its shareholders pay
taxes
taxesas
aswell
well
• The owners of
a company are called shareholders since they
own a share of the company and are entitled to
that portion of the company’s profits.
shareholders
shareholders
the
theowners
ownersofofaacorporation
corporation
 PRIVATE COMPANIES
(PROPRIETARY COMPANIES)
• is a company that is registered and is a legal entity.
• Can not sell shares to the public
• Directors have legal duties and responsibilities under
the Corporations Act.
A proprietary company must:
• be limited by shares or be an unlimited company with
a share capital;
• have no more than 50 non-employee shareholders;
• not do anything that would require disclosure to
investors under Chapter 6D of the Act;
• have at least 1 director.
 PUBLIC COMPANIES

• Can be listed on the Stock Exchange (ASX)

• Can be unlisted (not listed on the Stock
Exchange.)
• Must have at least 3 directors, 2 of whom must
be Australian residents.
• Shareholders own the company and directors are
appointed to run the business.
 CORPORATIONS (COMPANIES)

ADVANTAGES

Corporate shareholders have limited liability, but some

banks require officers to personally guarantee the debts of
the company.

limited
limitedliability
liability
partial
partialresponsibility
responsibilityofofaa
corporate
corporateshareholder;
shareholder;he heor
or
she
sheisisresponsible
responsibleonly
onlyupupto
to
the amount of his or
the amount of his or herher
individual
individualinvestment
investment
CORPORATIONS (COMPANIES)

ADVANTAGES
status

limited liability

ability to raise investment money

perpetual existence

employee benefits

tax advantages
 CORPORATIONS (COMPANIES)

DISADVANTAGES
A company is a more complicated and expensive structure to set
up due to compliance costs

income more heavily taxed

There are additional legal and financial reporting obligations

pays taxes on profits

stockholders taxed on dividends

 COOPERATIVES

• A cooperative is a business made up of at least

five members who contribute to the running of
the business
• All members have equal voting rights regardless
of their position in the business.
• They are social businesses because they put
people, not profit at the centre of the enterprise.
 COOPERATIVES

Cooperatives are becoming increasingly popular

and successful as they make each member feel
valued as equals, regardless of their position or
title within the cooperative.
"Cooperatives are a reminder that it is possible to
pursue both economic viability and social
responsibility."
— UN Secretary-General Ban Ki-moon (2012)

Cooperatives
Cooperatives
A co-operative structure is a
A co-operative structure is a
legally incorporated entity
legally incorporated entity
designed to serve the interests
designed to serve the interests
of its members
of its members
 COOPERATIVE

ADVANTAGES
there are equal voting rights for members

limited liability

structure encourages member contribution

and shared responsibility

perpetual existence

member benefits

there is no limit on the number of members

 COOPERATIVE

DISADVANTAGES

members have equal voting rights regardless of

investment

legal limits on payments of dividends on shares

Members lose some control over operations and may becoming

less competitive.
 NON-PROFIT CORPORATIONS

• A nonprofit corporation must fall within one of four

categories:
• religion
• charity
• public benefit nonprofit
nonprofitcorporation
corporation
• mutual benefit aalegal
legalentity
entitythat
thatmakes
makes
money
moneyfor forreasons
reasonsother
otherthan
than
the owner’s profit; it can make
the owner’s profit; it can make
aaprofit,
profit,but
butthe
theprofit
profitmust
must
remain
remainwithin
withinthe
thecompany
company
 FRANCHISES

• A franchise agreement allows a person

(franchisee) to use the name, products and
services of an existing business (franchisor),
• In return franchisees pay fees and a portion of the
profits to the owners of the franchise
 FRANCHISES

• Franchises are popular as they allow the

franchisee to use a proven business model that is
less likely to fail.
• The franchisee must follow the guidelines set by
the franchisor as to how to run certain aspects of
the business, but can often rely on the franchisor
for some support.
FRANCHISES
FRANCHISES
a franchise is the right or
a franchise is the right or
licence granted by a company
licence granted by a company
(franchisor) to an individual
(franchisor) to an individual
(franchisee) to market and/or
(franchisee) to market and/or
trade products and services
trade products and services
in a specific area or territory.
in a specific area or territory.
 FRANCHISES

ADVANTAGES
The independence of small business ownership supported by
the benefits of a big business network

Franchisors provide the training you need to operate their

business model

Franchises have a higher rate of success

than start-up businesses

It’s usually easier to secure finance for a franchise

They have an established reputation and image,

proven management and work practices, access to
national advertising and ongoing support
 FRANCHISES

DISADVANTAGES
Owners must enter into a formal agreement with
your franchisor

Franchise agreements dictate how you run the

business, so there may be little room for creativity.

There are usually restrictions on where you operate, the

products you sell and the suppliers you use

Bad performances by other franchisees may affect your

franchise's reputation

Buying a franchise means ongoing sharing of profit

with the franchisor.

Franchisors do not have to renew an agreement at

the end of the franchise term
WHICH COMPANY STRUCTURE IS BEST?

• Before deciding on a legal form, individuals must

ask key questions about:

their skills willingness to assume liability

access to capital level of control wanted
expenses length of time they expect to
own the business