Preliminary Topic: Nature of a Business
Types of Businesses: Classification of Business
P1 discusses the nature of business, its role in society and types of business structure
Students learn about:
Types of business
Classification 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
Classifying a Business
Any organisation that sells goods and services to consumers in order to make a profit is a business. There are four common methods used to classify common features of businesses. These include:
Classification by Size
When classifying a business by size the Australian Bureau of Statistics has developed a number of criterion by which the size of a business can be classified. This includes:
Number of employees
Number of owners
The most significant of these is the number of employees a business a business has.
Refer to the table below.
Type of business
Non-manufacturing (e.g. retail)
Employs less than 5 people.
Employs 0 - 19 people.
Employs between 20 - 199 people.
Manufacturing (e.g. factories)
Employs less than 100 people
Employs between 101 - 500 people
Employs 501 + people.
Using the information on the table above complete the table below. Indicate if the business is small medium or large by placing an X in the appropriate box
Size (based on number of employees)
Dress Shop 4 employees
Interior Designer 8 employees
Magazine Publisher 25 employees
Car assembler 330 employees
Accountant 26 employees
Computer company 60 employees
Oil Company 550 employees
Hotelier 20 employees
Exporter 6 employees
Builder 2 employees
Pool company 36 employees
Department Store 211 employees
Classification by Industry Sector/Stage of Production
An Industry consists of businesses that are involved in a similar type of production.
This includes all those businesses in which production is directly associated with natural resources. Often referred to as the "extractive" businesses due to the fact that these businesses are often taking from the natural environment. E.g. Farming, fishing, oil exploration etc. ( trees, steel/metal)
This includes those businesses that are involved in taking raw material and making it into a finished or semi-finished product. E.g. Manufacturing, construction etc. (factories etc.)
Tertiary industry is based on the processing or transfer of matter and/or energy. Eg transport, electricity, gas and water, retailing and wholesaling.
Tertiary can actually be further divided into:
Using the above information about industries above complete the table below. Indicate the industry in which the following businesses would operate.
Computer Software Co
Classification by Geographical Spread
In the appropriate text below provide an example of a local, national and global business.
4. Classification by Legal Structure (how many people own the business)
Unincorporated (unlimited liability)
Incorporated (limited liability)
Types of business structure
The process companies go through in order to become a separate legal entity from the owner/s.
Private Pty. Ltd. company
Public Ltd. company
The business entity and the owner are regarded as one and the same
Some additional notes:
Ã¢ÂÂ¢ Incorporated - this means the business exists in its own right, and is regarded as a separate legal entity from the owners
Ã¢ÂÂ¢An unincorporated business does not exist in its own right. When the owner dies then so too does the business entity, if the business is sued then the owner is sued, or if the business enters into a legal contract then the owners are the ones entering into the contract.
Ã¢ÂÂ¢ In limited liability companies the most money a shareholder can lose is the amount they paid for their shares. Therefore, if the company goes into liquidation the shareholders cannot be forced to sell their personal assets to pay for the debts of the business.
Ã¢ÂÂ¢For those businesses that have unlimited liability (i.e. sole trader and partnership), should the business fail or face financial difficulties then the owners would be responsible for all the debts of the business. This may mean that they need to sell some of their own personal assets to pay for the liabilities of the business.
5. Public/Private Ownership Not in syllabus
Government Business Enterprises (GBE's) are businesses that are government owned and operated. In Australia in recent times there has been a tendency for governments to sell off businesses they own to private citizens this is known as Privatisation.
Private Business enterprises are businesses that are owned and operated by private individuals or groups of individuals. Approximately 99.5% of businesses in Australia are privately owned.
GBE's are owned by government e.g. Australia Post, Medibank Private (can't invest in them because government owned)
Set up by piece of legislation
Sole traders, partnerships, private and public companies are all owned by private citizens (an individual chose to set up that business)
Indicate what would be included in the name.
NUMBER OF OWNERS
LIKELY SOURCE OF FUNDS TO START THE BUINESS
(Who will provide the finance?)
LIKELY MANAGER OF THIS BUSINESS
(Three if possible)
(Three if possible)
OTHER RELEVANT INFORMATION