The Nature of Business (chapter 1 - 4)
CASE STUDY RESEARCH: Nature of Business (20 marks)
- A fictitious scenario about a business will be provided and students will be required to write
a business report and answering three questions based on the scenario
- The focus of your research needs to be on the classification of business (legal structure), the
influences in the business environment (external and internal) and the business life cycle.
LEGAL STRUCTURE
Incorporated and unincorporated business structures: the four main legal structures of sole trader,
partnership, private company and public company can be further divided into incorporated and
unincorporated business structures.
INCORPORATED (limited liability) refers to the process companies go through to become a separate
legal entity from the owners. The business exists in its own right, it is its own legal entity. Regardless
of what happens to the owners the business can still run.
UNINCORPORATED: (unlimited liability) they have no separate legal existence from the owner and
will either be a sole trader or partnership. If something happens to the owner the business will
collapse. This is the most common structure for small businesses as it is the cheapest and easiest to
create.
Sole trader
- Business that is owned and operated by one person
- The owner may employ other people to work in the business but the owner/sole trader
provides the finance and makes all the decisions and takes all the responsibility for the
operation of the business
The only legal requirements to start a sole tradership is to have the name of the business registered
if its different to that of the owner. Eg. Paul Jones operates a lawn mowing company however
because his business name is Paul Jones he does not have to register the business. But if he wants to
call the business Pauls lawn service then it would have to be registered.
A sole trader is not a separate entity to the business therefore they are regarded as the sa,e. If the
business is sued so is the owner. If the business runs into financial difficulties the owner is
responsible to. This is unlimited liability.
Partnership
A partnership is owned and operated by between 2 and 20 people. Exceptions to the number include
medical practitioners and stockbrokers (allowed upto 50 partners), veterinarians, architects,
chemists (upto 100) and solicitors and accountants (allowed up to 400). Works the same as sole
trader as the owners and the business are regarded as the same, there is no legal entity. Therefore
the partners are also subject to unlimited liability and personally responsible for debts of the
business.
Companies that are incorporated enterprises have gone through the process of incorporation.
(becoming a separate entity from its owners) - this is referred to as the veil of incorporation.
Therefore the business will exist even when the owners change.
PROCESS OF INCORPORATION: by Commonwea...
