Unit 3 AOS 1 Business Management

Stakeholders definition

An individual or group that has a direct or vested interest in the activities of a business.

Who are the stakeholders

Owner

Manager

Customers

Employees

Suppliers

General community

Owner stakeholder interests

To aim for the profitability of the business to ensure that its business operations are ethical, to adopt socially responsible behaviour

Shareholders: To receive dividends, to see increased value of shares

Owner definition

A person who invested money into the business and owns a portion of the business

Manager definition

A person responsible for controlling or administering an organisation or group of people

Manager stakeholder interests

To be involved in setting goals and objectives

To ensure strict adherence to ethics and social responsibility

To gain personal power and status by being promoted

To be well renumerated

Employees definition

A person who completes work within the business in exchange for a wage or salary

Employees stakeholder interests

To receive a fair wage or salary

To have the opportunity for career advancement

To have work life balance

To gain job satisfaction

To have job security

Customers definition

Those who purchase goods and services from a business

Customers stakeholder interest

To obtain high quality goods and services for a reasonable price

To receive high levels of customer service

To ensure products are Australian made or business is Australian owned

To ensure the business is acting in a socially responsible manner

Suppliers definition

Businesses that provide resources to a business

Suppliers stakeholder interests

Developing a long term relationship with the business to create a steady revenue stream

Be paid promptly

To ensure that their customers business is profitable (to get paid)

General community definition

Group of people that live in the same area which the business operates

General community stakeholder interests

To benefit from employment opportunities created by the business

For the business to participate in the community

Ensure the business operations are sustainable in the local community

Competitor definition

A business rival in the same market for products or services offered by a business

Competitor stakeholder interests

Ensure they have a competitive advantage over the business

To differentiate their product or service from competitors

Compare and evaluate performance against other businesses

Trade union definition

Organisation of employees who have joined together to achieve common goals such as higher pay, better working conditions and job security

Trade union stakeholder interest

Ensure that employees receive fair wages and work conditions

Be involved in decision making related to employees in the workplace

Environmental lobby group definition

A group of people who promote environmental issues to government, the public and business

Environmental lobby group stakeholder interest

Ensure that the business acts in a sustainable manner

Types of businesses

Private sector owned by private individuals, groups or institutions

Public sector owned by the government

Unlimited legal liability definition

Business owners are fully responsible by law (if their business fails) to the extent of their personal assets

Limited legal liability

Business owners are only personally responsible by law to the level of their original investment in the business

Sole trader definition

A business owned by one person who is entitled to keep all profits after tax has been paid but liable for all losses.

Sole trader

1 owner

Private sector

Unlimited liability

The business and owner have the same legal entity

Sole traders are allowed to employ staff to help them run the business

Sole trader advantages

Simple and inexpensive to set up

Owner has total control over business

Minimal government regulation

Owner keeps all net profits

Sole trader disadvantages

Unlimited liability for owner (personally responsible for all costs)

Harder for owner to get funds for the business

Burden or managing entire business. Takes on 100% financial risk

Reliant on owners own knowledge and skills

Partnership definition

A business owned by between 2 and 20 people

Partnership

Private sector

Unlimited liability

Some businesses may have a silent partner. This partner invests but plays no active role in the running of the business

To minimise disputes between partners, it can assist to have an official partnership agreement which also outlines profit equality.

Partnership advantages

Simple and inexpensive to set up

Risk and workload is shared between partners

Minimal government regulation

Greater pool of experience to help make stronger decisions

Increased access to funds

Partnership disadvantage

Unlimited liability (personally responsible for all debts) All partners are 100% liable

Profits are shared among partners

Potential for disputes and personality clashes

May be difficult to remove a partner

Partnership dissolves once a partner passes

Company

A company is a business that has gone through the process of incorporation

The owners purchase shares which give them an ownership portion

Owners of a company are called shareholders

A company is a separate legal entity to the owners so the owners have limited liability

Companies have perpetuity (ongoing life) once an owner leaves the business still exists

Private limited company definition

A private company is an incorporated business that is owned by between 1 and 50 shareholders.

Private limited company

Easily recognized by the words ‘Proprietary limited’ or ‘Pty Ltd’ at the end of the name

A private company must have at least one director who makes decisions on behalf of shareholders

Shares are traded only with the permission of other shareholders

Private limited company advantages

Limited liability

Extra capital can be obtained by issuing more shares (up to 50)

Existence not threatened by death or removal of one of the shareholders (perpetuity)

Potential tax benefits

Private limited company disadvantages

Highly complex structure and expensive to establish

More reporting requirements to owners and government

More difficult to sell shares and raise funds (compared to a public company)

Public company definition

A public company is an incorporated business that is owned by shareholders and has no upper limit to the number of shareholders. Shares are openly traded on the Australia Securities Exchange (ASX)

Public company

Unlimited shareholders

Private sector

Limited liability

‘Ltd’ after name

Shares are freely traded to members of the public

Public companies are required to notify the public of their performance

Public company advantages

Limited liability

Ability to gain extra capital through selling extra shares

Easy transfer of ownership by selling or buying shares on ASX

Existence not threatened by death or removal of one of the shareholders (perpetuity)

Public company disadvantages

Highly complex structure and expensive to establish

Needs more accountability and compliance paperwork such as producing annual report and audited accounts

No control over who owns the company as shares are freely traded

Social enterprise definition

Private sector business that distributes surplus funds to benefit the community rather than individual shareholders

Social enterprise

Goals:

To achieve a social, cultural, community or environmental outcome

Earn revenue

Social enterprises run like a business, they produce goods or services to sell but redirect the surplus in pursuit of social or environmental goals

The majority of social enterprises adopt the legal structure of a company

Social enterprise advantages

May attract customers due to them believing in the social cause

Improved morale within the business as employees value the work they are doing

Social enterprise disadvantages

Difficult to obtain finance to begin the business

Difficult to focus on both financial and social objectives and balancing the two

May need to consistently work with tight budgets, making it difficult to compete

Government business enterprise (GBE) definition

A business that is government owned. GBE’s seek to run profitably by controlling costs and selling their goods and services at a price to cover costs

Government business enterprise

Public sector - owned by government

Normally controlled by a board of directors as well as two shareholder ministers

GBE’s provide essential services such as communications, transport

Profits are returned to the government

Government business enterprise (GBE) advantages

Able to offer services to the community that other businesses may not find financially desirable - no competition

Provides healthy competition to the market, benefitting customers

Government business enterprise (GBE) disadvantages

Strategic directions can change when the government changes which can be difficult for the employees

May be inefficiencies caused by government’s strict regulations and processes e.g having to get major decisions approved.