Types of Businesses
 classification
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of business
size – small to medium enterprises (SMEs), large
local, national, global
industry – primary, secondary, tertiary,
quaternary, quinary
legal structure – sole trader, partnership, private
company, public company, government enterprise
 factors
influencing choice of legal structure –
size, ownership, finance
Small to medium enterprises (SMEs) are the
most common businesses in Australia. These
businesses play a key role in the provision of
goods and services for the
general public, provide employment, foster
innovation and productivity improvements,
supply inputs to larger businesses, serve the
interests of local communities and facilitate
growth in the Australian economy.
According to the ABS in 2001, a small business is defined as a
business that employed less than 20 people, including
categories of:
􀀀 non-employing businesses – sole proprietorship and
partnership without
employees
􀀀 micro businesses – businesses employing less than 5 people,
including non-employing businesses
􀀀 other small businesses – businesses employing 5 or more
people, but less than 20 people.
A medium business is one that employs more than 20 but less
than 200 people.
Thus a large business is one that employs 200 or more people.
Local, national, global
A
local business is an organisation that
operates within one area.
 National businesses operate across Australia.
 An international business is one whose
ownership and production is based in one
country; it exports the goods and/or services
it produces to other countries.
 A transnational business is a business that
operates in many countries. Its goods and
services are produced and sold in a number
of different countries.
Primary industry businesses are involved in the
acquisition of raw materials
 The secondary industry consists of businesses that
use raw materials, combined with labour and capital
equipment, to create finished products.
 The tertiary industry is made up of businesses whose
prime function is related to providing a service.
 The quaternary sector consists of those businesses
that provide information services to their customers.
 The quinary sector is concerned with businesses that
provide services that are traditionally performed in
the home.

Sole
Trader
Trust
Partnership
Legal
Structure
Private
Company
Cooperative
Company
Limited by
Guarantee
Public
Company
Size – as a business grows, it is likely it will move from
either a sole trader or partnership to a company
structure.
 Ownership – by altering the legal structure of a
business, the original owner is also likely to relinquish
his or her full control over the business.
 Finance – generally, smaller businesses may find it
more difficult to access finance than do their larger
counterparts. Business growth is often accompanied by
a greater demand for financial resources.

Advantages
Personal (unlimited)
liability for business
 Low cost of entry
debts
 Simplest form
 End of business when
 Complete control
owner dies
 Less costly to operate
 Difficult to operate if
 No partnership disputes sick
 Owner’s right to keep  Need to carry all losses
all profits
 Burden of management
 Less government
 Need to perform a
regulation
wide variety of tasks
 No tax on profits, only
 Difficulty in raising
personal income
finance for expansion
Disadvantages

Advantages
Disadvantages
Low start-up costs
 Personal unlimited
liability
 Less costly to operate
than a company
 Liability for all debts,
including partner’s
 Shared responsibility
debts, even before the
and workload
partnership has begun
 Pooled funds and talent
 Possibility of disputes
 Minimal government
 Difficulty in finding a
regulation
suitable partner
 No tax on profits, only
 Divided loyalty and
personal income
authority
 On death of one
partner, business can
keep going

Advantages

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Disadvantages
Easier to attract public finance

Limited liability – separate legal

entity
Can transfer ownership easily

Enjoys a long life – perpetual
succession
Experienced management – board of 
directors

Greater spread of risk
Company tax rate lower than personal

income tax rate
Growth potential
Recent legislation power allows a
company to have only one
shareholder and one director
Cost of formation
Double taxation – company and
personal
Personal liability for business debts of
directors knew at the time that the
business was unable to pay loans
Must publish a yearly annual report of
audited accounts
Public disclosure – reporting of
certain information
Becomes too large resulting in
inefficiencies