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					                           Business Studies Topic 1 Revision Notes

Definition: Is the organized effort of individuals to produce and sell, for a profit.

The roles of a business include:
   - Employment of people
   - Provide the basis for a nations economy
   - Bring about technological change and innovation
   - Provide opportunities for individuals to become entrepreneurs
   - Offer choices relating to work consumption
   - Provide social interaction

What business does: The role of a business is to provide goods and services and add value
to the process of production.
     - Value Chain: Is the concept that value is added at each stage of production, as raw
         materials are transformed into finished products.
     - Making a profit is important to most businesses. Some businesses exist to achieve
         other goals, such as providing specific services to the community E.g. ABC and
     - Business Management: Is the process of organizing all aspects of running a
         business, involves choosing particular product or service, setting up the right legal
         structure, arranging sources of finance, employing staff, organizing marketing and
         promotional activity, coordinating relationships with supplies and customers.

The Importance of small business:
   - Small business/ Non manufacturing- less than 20 employees/ manufacturing less
       than 100 employees.
   - Small businesses employ 3.5 million people 40% of total employment.

Business Goals:

        Financial Goals
    -   Breaking Even: First major goal is survival. Business needs to have enough revenue
        to cover its costs, or else losses are made and it cannot survive in the long term. In
        starting of a business may experience loss however its operators will lift revenue so
        that it can cover costs.

    -   Making a profit: The main aim of businesses is to maximize profit. The level of profit
        will depend on the amount of money invested and the degree of risk taken.

    -   Growth: Business growth should mean lower per unit costs of production as costs are
        spread over more units of output.

    -   Market Share: When establishing, businesses aim to capture market share than to
        make a profit. Market share refers to the percentage of total sales of a product sold
        by a business in the total market.

        Social Goals
    -   Providing services to the community
    -   Providing workers with employment, income and better career paths
    -   Environmental awareness and education

        Personal Goals
    -   Greater freedom, status, self esteem
    -   Being your own boss, working your own hours
    -   More control over you life, career, future etc.

        Conflicting Goals: often goals may conflict with each other. In order to increase
        market share shot term profits must be sacrificed. Profit sacrifices due to
        environmentally friendly production.
Challenges in running a business: often people who start up a business do not have well
developed general skills to manage the complex functions involved in running a business.
One of the major problems associated with Business is
Under cpitalsation: Not starting with enough money to keep the business alive.

Management: Business management involves coordinating all of the different aspects of a
business including planning, market research, product design, production distribution,
marketing staffing and budgeting. Senior managers provide direction for the whole business
and try to ensure business goals are met.

The Business Life Cycle: The business life cycle consists of four stages:
    -   Establishment
    -   Growth
    -   Maturity
    -   Post Maturity/ renewal/ plateau/ steady state/ decline Cessation

Establishment stage: One of the most challenging phases in the business life cycle. The
business has high costs associated with its setup. Difficulties may be experienced in obtaining
necessary funds.
Challenges: Choosing appropriate legal structure, finding the right size and location of
premises, working out the best marketing strategies, choosing appropriate product to

Growth stage: once the business has survived establishment stage, it moves to a period
rapid growth. Customers become aware of the company and what it offers. Business operator
may have learnt from mistakes in establishment stage and there might be better
management. Easier to obtain finance and employees.
Challenges: Ensure quality of production is maintained as output grows, develop financial and
accounting systems that provide management with details about performance, Recruit new
employees and delegating responsibilities, Changing role of management so there is a low

Maturity: The third phase in the business life cycle when rapid growth phase levels off.
Challenges: Staying responsive to changes in consumer demands, rationalizing business
operations and minimizing costs, identifying opportunities for innovating.

Post Maturity: may continue at steady state, may go through renewal and expand again,
may decline of shut down.
Challenges: Understanding the changing tastes and needs of consumers, orientating the
management and staff towards change, shifting to new market where there is more growth.

Closing a business:
Voluntary: reasons for ending the business refer to a choice made by the owner of a firm that
is not forced on them.
Involuntary: Business is forced to close due to lack of management, excessive borrowing, not
enough demand for the good, unfavorable economic conditions.

Stakeholders: the community of people affected by business are sometimes known as the
stakeholders. They include:
    - Employees
    - Customers
    - Management
    - Suppliers
    - Local communities
    - Future generations
    - The natural environment
Business ethics: relates to the values underlying the decisions and actions of businesses.
Ethical issues include fair treatment of workers, honesty in advertisement and responsibility to

The Public and Private Sector:
Public Sector: includes all three levels of government (local, state, federal). It includes All
departments and agencies of all levels of government.
Private Sector: Covers all businesses that are not owned by the government. Most Business
activity is undertaken by the private sector.

Large: 200 or more people
Medium: More than 20 but less than 200
Small: less that 20 people
Very Small/ Micro: less than 5 people

Industry Sector:
Primary Industries: exploit natural resources such as agriculture, mining, forestry products
and fishing. They provide raw materials needed in other industries such as timber wheat and
iron ore.

Secondary Industries: Use raw materials and manufacture goods.

Tertiary Industries: provide services for the economy such as transport, storage and
distribution, leisure and entertainment.

Quaternary Industries: focus on the processing of information, include information
technology, telecommunications, media and financial services.

Quinary Industries: focus on providing domestic services, including home cleaning, take
away food, childcare and nursing homes.

Legal Structure: Private sector businesses are usually divided into two main groups
incorporated and unincorporated enterprises.
Incorporated: means it’s officially registered as a company and is a legal entity in its own right.
They include Private companies, Public companies, cooperatives and trusts.

Unincorporated: means there is no difference between the owners themselves therefore the
owners have legal responsibility for all actions and debts of the company. They usually
include sole traders, partnerships and limited partnerships.

Unincorporated Legal Structures
Sole Traders: business is owned and operated by a single person. Usually small due to
limited amount of finance. E.g. Barber, Newsagent, Small retail shop. Must be registered
through department of fair-trading.
Advantages: Establishment is small and cheap, owner keeps all profits, Free to make
business decisions, flexibly hours.
Disadvantages: Unlimited liabilities, difficult to obtain finance, business depends on the

Partnership: Exists when two or more people two or more (2- 20) operate a business
together, sharing the profits. Must also register under the department of fair-trading. Also a
partnership agreement must exist be formed stating rights and obligations- it is a legally
binding document.
Advantages: Responsibility can be shared and does not rely on individual allowing room for
specialization, better access to finance, may get tax benefits to split incomes.
Disadvantages: unlimited liability, often disagreements may occur, profits must be shared,
partnership ends when one partner dies.

Limited partnerships: Allows a person to invest capital in a business venture, without being
responsible for the debts and failures of the business. In a limited partnership the only risk for
an investor is the loss of investment funds. This structure is popular for higher risk business
ventures. A limited partnership must have one general partner who has unlimited liability and
is involved in managing the business.

Incorporated Legal structures:
Companies: Are separate legal entities from their owners. This means the owners cannot be
held responsible for the debts of the company. When forming a company it is necessary to
comply with the corporations act, which requires signing up a constitution and lodgment of
appropriate forms to Australian securities and investment commission (ASIC), then a
certificate of incorporation is issued.

Difference between companies and unincorporated businesses:
     - The owners (shareholders) in companies have limited liabilities
     - Companies are subject to company tax- 30 cents in the dollar
     - Companies raise most finance through equity finance, and to a lesser extent debt
        finance. Equity finance is raising money through sale of shares. Debt finance is
        borrowing money from individuals or financial institution.
     - The day today running of a company is done by managers appointed by board of
        directors, who are elected by shareholders.

Different types of companies:
A proprietary company is a private company, As such in the words “Proprietary Limited” (Pty
Ltd). 2- 50 shareholders and shares cannot be sold to the general public through stock

A public company is one that is listed on the stock exchange. Firstly the company must issue
a prospectus. Must meet approval of the ASIC and comply with rules imposed by Australian
Stock exchange (ASX). A public company has the word “Limited” (Ltd) after its name
indicating shareholders have limited liability. Must have at least 5 shareholders but no upper
limits apply. More capital can be raised in public company.

Cooperatives: are incorporated organizations owned and controlled by members, which
have been set up to provide benefits those members. The formation and operation of
cooperatives is governed by Corporations Act, this requires at least 7 members. The
cooperative must register its rules covering such issues as shareholdings, membership,
support and participation, voting and meeting procedures.
   - Commercial cooperatives: usually operates in primary industries, covering rural
        activities such as dairy farming. Commercial cooperatives also exist in tertiary
        industries such as real estate, wholesaling and retailing.
   - Financial cooperatives: provide common financial benefits to members. Includes
        building societies and credit unions where members can invest money, and when
        required borrow money for personal needs.
   - Community service cooperatives: set up to provide services to the community. They
        cover wide range of services from ethnic community services, childcare, sports and
        social clubs.
Characteristics of cooperatives:
   - Cooperative not required to pay tax on any profits that are distributed. But members
        must pay tax on this money as personal income.
   - Separate legal entity from its owners
   - Members elect bored of directors

Trusts: A trust is an organization where the trustee is responsible for the management of
assets on behalf of other persons, known as the beneficiaries. Trusts help people minimize
tax payments. Major benefits include:
    - No tax required on behalf on investors. Instead, returns are taxed in the hands of the
        unit holders.
    - Liability for any loses is born by unit holders, with loss being reflected by a decline in
        the value of each unit holding.
International, multinational and transnational businesses:
International business: Is a legal entity where ownership and production are based in one
country, but exports goods and services to other countries.
Multinational business: Ownership is still restricted, operation in more than one country.
Transnational business: has international ownership and operations.

The choice of legal structure: The key factors influencing choice of legal structure include:
   - Size: As businesses become larger they will find advantages in changing their legal
       structure, businesses may start of unincorporated but work their way to become
       incorporated as a result may gain benefits such as limited liability and greater access
       to finance.
   - Finance: Most business begin with very little capital, normally relying on resources of
       business owners. As business develops its need for finance grows and a company
       structure may be more appropriate.
   - Ownership: Some businesses may not be interested in making a profit but might
       rather choose the structure of a cooperative or a company limited by guarantee. In
       choosing the appropriate structure, it may be easier for people to move in and out of
       business ownership.
   - Personal Factors: Business owners place a high priority on the freedom of being self
       employed. Personal factors are a very important part of decision making. Relaxed
       working life greater control over work hours. To avoid disputes between parties etc.
   - Changes In Government Ownership: Many companies feel that to achieve more
       efficient and profitability it is necessary to shift out government ownership. Many
       government businesses were sold through the process of privatization.

The role of the SME sector:
   - Over 96% of all businesses in Australia are small to medium size enterprises (SMEs)
   - Employ 50% of the Australian workforce
   - Non-agricultural SMEs have increased by 6.1%- 951 100 businesses.
   - SMEs have certain advantages over larger businesses. Their capacity to adopt,
       innovate, be creative, respond to changes in the marketplace, and create new
   - Outsourcing also occurs where larger companies contract work out to SMEs
   - People in smaller businesses often feel that they can influence the performance of
       the firm directly.

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