Types of Businesses (U3 AOS1 KK1)
Contents
Background info: Business types with unlimited liability Business types with limited liability
What is a business? Sole trader business Private limited company
Needs and wants Partnership Public listed company
Goods and services Background info: Enterprise business types
What is a market? What is incorporation? Social enterprise
Shares Government business enterprise
Winding up a business Comparing business types
Key Background Information
What is a business?
A business involves one or more humans creating and selling products (goods and/or services) in order to satisfy
society’s needs and wants and make a profit.
What are Needs and Wants?
Need- something essential for survival e.g. food and water.
Want- something that is not essential for survival e.g. book (wants are unlimited)
What are Goods and Services?
Goods- tangible items that are able to be sold in a market.
Services- intangible activities that are able to be sold in a market.
What is a Market?
When potential buyers come into contact with potential sellers and there is a means of exchange (method of payment
e.g. money).
Business Types with Unlimited Liability
1. Sole Trader Business
Types of Businesses (U3 AOS1 KK1) 1
, A type of unincorporated business (not a company) which is owned and operated by a single person.
Person who owns a sole trader business is NOT a “sole trader”.
Correct term → “Owner of a sole trader business” ✅
The owner can hire employees, however…
The owner makes all the decisions, provides all the funds, and takes full responsibility for the operations of the
business.
A sole trader business is not a separate legal entity.
If the business is sued, the owner is sued.
The owner has unlimited liability for the actions of the business.
The business is not taxed, the owner only pays personal income tax.
The owner retains all of the business’ profits.
2. Partnership
🤝 A type of unincorporated business that is run by two or more people (the partners).
Maximum number of partners is usually 20, but differs in some sectors.
Responsibility for the business is shared between the partners.
Types of partnerships:
General partnership (default type)
→ All partners have unlimited liability in the business and generally help run the business in day-to-day operations.
Limited partnership
→ A limited partner’s liability is restricted to the proportion of their investment in the partnership.
→ Limited partners contribute finances but do not help run the business.
General partnerships are the default type, and assessors will assume that you are talking about general
partnerships in questions unless stated otherwise.
Partnerships can be created:
a) verbally
b) in writing, or
c) by implication
Partnerships can be created by implication if the partners set up a business together without
a verbal or written agreement.
(The amount of profit each partner receives depends on the agreement.)
A partnership is not a separate legal entity, therefore does not pay tax.
Each partner must pay personal income tax on the profits that they have earned from the partnership.
Key Background Information
Types of Businesses (U3 AOS1 KK1) 2
Contents
Background info: Business types with unlimited liability Business types with limited liability
What is a business? Sole trader business Private limited company
Needs and wants Partnership Public listed company
Goods and services Background info: Enterprise business types
What is a market? What is incorporation? Social enterprise
Shares Government business enterprise
Winding up a business Comparing business types
Key Background Information
What is a business?
A business involves one or more humans creating and selling products (goods and/or services) in order to satisfy
society’s needs and wants and make a profit.
What are Needs and Wants?
Need- something essential for survival e.g. food and water.
Want- something that is not essential for survival e.g. book (wants are unlimited)
What are Goods and Services?
Goods- tangible items that are able to be sold in a market.
Services- intangible activities that are able to be sold in a market.
What is a Market?
When potential buyers come into contact with potential sellers and there is a means of exchange (method of payment
e.g. money).
Business Types with Unlimited Liability
1. Sole Trader Business
Types of Businesses (U3 AOS1 KK1) 1
, A type of unincorporated business (not a company) which is owned and operated by a single person.
Person who owns a sole trader business is NOT a “sole trader”.
Correct term → “Owner of a sole trader business” ✅
The owner can hire employees, however…
The owner makes all the decisions, provides all the funds, and takes full responsibility for the operations of the
business.
A sole trader business is not a separate legal entity.
If the business is sued, the owner is sued.
The owner has unlimited liability for the actions of the business.
The business is not taxed, the owner only pays personal income tax.
The owner retains all of the business’ profits.
2. Partnership
🤝 A type of unincorporated business that is run by two or more people (the partners).
Maximum number of partners is usually 20, but differs in some sectors.
Responsibility for the business is shared between the partners.
Types of partnerships:
General partnership (default type)
→ All partners have unlimited liability in the business and generally help run the business in day-to-day operations.
Limited partnership
→ A limited partner’s liability is restricted to the proportion of their investment in the partnership.
→ Limited partners contribute finances but do not help run the business.
General partnerships are the default type, and assessors will assume that you are talking about general
partnerships in questions unless stated otherwise.
Partnerships can be created:
a) verbally
b) in writing, or
c) by implication
Partnerships can be created by implication if the partners set up a business together without
a verbal or written agreement.
(The amount of profit each partner receives depends on the agreement.)
A partnership is not a separate legal entity, therefore does not pay tax.
Each partner must pay personal income tax on the profits that they have earned from the partnership.
Key Background Information
Types of Businesses (U3 AOS1 KK1) 2
