Types of Businesses:
Sole trader:
A business structure that is owned and operated by one individual.
Advantages
The owner has full control and decision-making power
There is a low risk of disputes as there is only one owner
making decisions
Easy to register and set up
Fewer reporting requirements and minimal government
regulation
Other owners do not need to be consulted when making-
decisions, therefore it can be quick
Least expensive type of business to set up
The owner can retain all business profits
Disadvantages
Unlimited liability puts the owner’s personal assets at risk, as
they can be seized to pay off business debts
The knowledge and skills are limited to the owner, meaning the
owner may not have appropriate expertise in various areas
The life of the business ends when the owner dies
It may be difficult to take time off work for holidays or when
sick, as no one else can operate the business
Difficult to raise money to expand the business due to being
limited to the owner’s personal savings
Additional Terms:
Unlimited liability- the personal legal responsibility of a business
owner has for an unincorporated business’s debts.
Partnership:
A business structure that is owned by 2 to 20 owners.
Advantages
Greater range of expertise and ideas amongst numerous
partners
The financial and legal risks are shared between partners
, Owners can share the workload and take time off as there are
multiple people that can manage the business
Easy and simple to register and set up
Fewer reporting requirements and minimal government
regulation
Greater access to finances as there are more people involved
Minimal start-up costs
Disadvantages
Unlimited liability means that the partners’ personal assets are
at risk, as they can be seized to pay off business debts
Conflicts could arise due to shared decision-making and
personality clashes amongst partners
If one partner leaves, it could be time-consuming to restructure
the partnership
Profit needs to be shared between the partners
Liability for debts incurred by other partners is held by all of the
partners
Private limited company:
An incorporated business structure that has at least one director and
a maximum of 50 shareholders.
Advantages
There is limited liability for shareholders
There is a greater variety of expertise and ideas as more people
are involved
The business’s existence is not threatened by the removal of
one director
Since incorporated businesses have greater access to capital,
banks are more inclined to provide them with loans
Disadvantages
Complex reporting requirements, such as annual reports, need
to be published for shareholders
It is difficult to change structure once a company has been
established
, It is complex to establish, as the setup process requires more
time
Increased reporting requirements and government regulation
It is expensive to set up and operate as there are higher set-up
and ongoing administration costs
Public listed company:
An incorporated business that has an unlimited number of
shareholders and lists and sells its shares on the ASX.
Advantages
Shareholders have limited liability
There is greater access to expertise and ideas as more people
are involved
No permission is needed to trade and sell shares
The life of the company can live longer than the directors
Greater access to capital as any member of the public can
purchase shares
Disadvantages
Conflicts could arise through shared decision-making between
directors
There are complex reporting requirements, such as annual
financial reports, that need to be published to the public
Greater time taken to set up as it is a complex business
structure
Producing annual financial reports can be a time-consuming
process
It is expensive to set up and operate
Additional Terms:
Incorporated- A legal status of a company whereby the company
is established as a separate legal entity to the shareholder/s
Director- A person or a group of people who are responsible for
and in charge of making decisions for a company
Sole trader:
A business structure that is owned and operated by one individual.
Advantages
The owner has full control and decision-making power
There is a low risk of disputes as there is only one owner
making decisions
Easy to register and set up
Fewer reporting requirements and minimal government
regulation
Other owners do not need to be consulted when making-
decisions, therefore it can be quick
Least expensive type of business to set up
The owner can retain all business profits
Disadvantages
Unlimited liability puts the owner’s personal assets at risk, as
they can be seized to pay off business debts
The knowledge and skills are limited to the owner, meaning the
owner may not have appropriate expertise in various areas
The life of the business ends when the owner dies
It may be difficult to take time off work for holidays or when
sick, as no one else can operate the business
Difficult to raise money to expand the business due to being
limited to the owner’s personal savings
Additional Terms:
Unlimited liability- the personal legal responsibility of a business
owner has for an unincorporated business’s debts.
Partnership:
A business structure that is owned by 2 to 20 owners.
Advantages
Greater range of expertise and ideas amongst numerous
partners
The financial and legal risks are shared between partners
, Owners can share the workload and take time off as there are
multiple people that can manage the business
Easy and simple to register and set up
Fewer reporting requirements and minimal government
regulation
Greater access to finances as there are more people involved
Minimal start-up costs
Disadvantages
Unlimited liability means that the partners’ personal assets are
at risk, as they can be seized to pay off business debts
Conflicts could arise due to shared decision-making and
personality clashes amongst partners
If one partner leaves, it could be time-consuming to restructure
the partnership
Profit needs to be shared between the partners
Liability for debts incurred by other partners is held by all of the
partners
Private limited company:
An incorporated business structure that has at least one director and
a maximum of 50 shareholders.
Advantages
There is limited liability for shareholders
There is a greater variety of expertise and ideas as more people
are involved
The business’s existence is not threatened by the removal of
one director
Since incorporated businesses have greater access to capital,
banks are more inclined to provide them with loans
Disadvantages
Complex reporting requirements, such as annual reports, need
to be published for shareholders
It is difficult to change structure once a company has been
established
, It is complex to establish, as the setup process requires more
time
Increased reporting requirements and government regulation
It is expensive to set up and operate as there are higher set-up
and ongoing administration costs
Public listed company:
An incorporated business that has an unlimited number of
shareholders and lists and sells its shares on the ASX.
Advantages
Shareholders have limited liability
There is greater access to expertise and ideas as more people
are involved
No permission is needed to trade and sell shares
The life of the company can live longer than the directors
Greater access to capital as any member of the public can
purchase shares
Disadvantages
Conflicts could arise through shared decision-making between
directors
There are complex reporting requirements, such as annual
financial reports, that need to be published to the public
Greater time taken to set up as it is a complex business
structure
Producing annual financial reports can be a time-consuming
process
It is expensive to set up and operate
Additional Terms:
Incorporated- A legal status of a company whereby the company
is established as a separate legal entity to the shareholder/s
Director- A person or a group of people who are responsible for
and in charge of making decisions for a company
