Business foundations - Unit 3 AOS 1 (2025)

Sole trader 

is a business structure that is owned and operated by one individual

Sole trader features

• Has full decision-making power and is legally responsible for all aspects of the business

• Cheapest and simplest type of business to set up/operate

• Owner and business are considered the same legal entity (unincorporated)

• Sole traders assume full responsibility for their business legally and financially (unlimited liability). Personal assets may be seized to pay off business debts

• Sole trader keeps all business profits after paying personal income tax.

• Tax is compulsory and funds public goods/services (e.g., courts, police).

• Can hire employees but owner makes all business decisions.

Advantages of a sole trader

• The owner has full control and decision-making power, therefore there is a low risk of disputes.

• Fewer reporting requirements and minimal government regulation, thus less time consuming and easy to register and set up.

• The owner can retain all business profits.

Disadvantages of a sole trader

• Unlimited liability puts the owner’s personal assets at risks, as they can be seized to pay off business debts.

• The knowledge and skills are limited to the owner, meaning the owner may mot have appropriate expertise in various areas.'

• Difficult to raise money to expand the business due to being limited to the owner’s personal savings. It also can be difficult to access money from financial institutions

Unincorporated

is a legal status of a business whereby the business owner and the business are viewed as the same legal entity

Unlimited liability

is the personal legal responsibility a business owner has for an unincorporated business’s debts.

Partnership

is a business structure that is owned by two to 20 owners

Partnership features

• Also an unincorporated structure and all of the owners have unlimited liability over business debts.

• Easy and inexpensive to establish

• Has a partnership agreement, which is a document signed by all of the partners and includes partner details, distribution of profit, responsibilities of each partner, and financial contributions from each partner.

• Each partner must pay personal income tax on their share of the profits.

Partnership advantages

• The financial and legal risks are shared between partners

• Greater range of expertise and ideas amongst numerous partners

• Minimal startup costs

Partnership disadvantages

• Conflicts could arise due to shared decision-making and personality clashes amongst partners

• Profits need to be shared between the partners

• Unlimited liability means that the partner’s personal assets are at risk, as they can be seized to pay off business debts.

Private limited company

is an incorporated business structure that has at least one director and a maximum of 50 shareholders

Private limited company features

• Shareholders must be selected and approved by the board of directors. Owners are called shareholders, as they own shares in the business.

• Shareholders expect returns through dividends (profit share) and share value growth.

• Company profits are taxed before shareholders receive returns.

• Shares can only be sold to people approved by the business.

• Shareholders have private ownership and limited liability for business debts.

• Business structure is called proprietary limited (Pty Ltd.), included in the company name.

Advantages of private limited company

• There is limited liability for shareholders

• The business’s existence is not threatened by the removal of one director

• Since incorporated businesses have greater access to capital, banks are more inclined to provide them with loans.

Disadvantages of private limited company

• Complex reporting requirements, such as annual reports, need to be published for shareholders as well as increased reporting requirements and government regulation.

• It is complex and expensive to set up and operate as there are higher set-up and ongoing administration costs; thus more time consuming.

• It is difficult to change structure once a company has been established. 

Public listed company

is an incorporated business that has an unlimited number of shareholders and lists and sells its shares on the ASX

Features of public listed company

• Requires at least one shareholder and three directors.

• Managed by a board of directors.

• Business name includes ‘Ltd.’ to show limited liability of owners.

• Listed on the Australian Securities Exchange (ASX).

• Shares can be freely bought and sold by the public.

• Must publish financial reports and pay company tax.

• Subject to a high level of government regulation.

Advantages of public listed company

• Shareholders have limited liability

• Greater access to capital as any member of the public can purchase shares.

• There is greater access to expertise and ideas as more people are involved.

Disadvantages of public listed company

• Conflicts could arise through shared decision-making between directors.

• There are complex reporting requirements, such as annual financial reports, that need to be published to the public. + Producing annual financial reports can be a time-consuming process.

• It is expensive to set up and operate and take greater time to do so as well as it is a complex business structure.

Incorporated

is a legal status of a company whereby the company is established as a separate legal entity to the shareholder/s.

Limited liability

is when shareholders are only liable to the extent of their original investment, meaning they are not personally responsible for the business debts.

Social enterprise

is a type of business that aims to fulfil a community or environmental need by selling goods or services.

Social enterprise features

• Not a legal business structure in Australia (operate as sole traders, partnerships, or private companies).

• Main objective: support social/environmental causes (e.g., reduce poverty, provide employment, protect environment).

• Profit is still important to sustain operations and causes.

• Majority of profits go towards addressing social issues, not to shareholders/owners.

• In Victoria, must contribute at least 50% of profits to a social or environmental cause.

• Different from charities: revenue mainly from sales, not donations.

Advantages of a social enterprise

• The community benefits from the business’s activities. Thus, the business can develop a positive reputation as they are helping and contributing to society. 

• Employees have purposeful work so they are more likely to be satisfied with their job.

• Likely to receieve financial support from other businesses and the government as they have a positive social mission.

Disadvantages of a social enterprise

• Difficult to balance the achievement of financial objectives with social objectives.

• May be difficult to obtain a bank loan as the business does not solely focus on financial objectives.

Government business enterprise (GBE)

is a business that is owned and operated by the government

GBE features

• Operates in the public sector with a government-outlined purpose.

• Provides essential public services (e.g., transport, housing, communication).

• Government has strong interest in performance and financial returns.

• Government can propose changes to strategy and objectives.

• Must meet reporting requirements and is accountable to both government and public.

Advantages of GBE

• Delivers goods and services that help the community and the community’s needs.

• GBEs can rely on the government for initial investment.

• • GBEs can operate with some independence from the government.

Disadvantages of GBEs

• Governments and politicians can interfere and change the strategic direction of the business.

• GBEs have to follow significant ‘red tape’, which refers to excessive rules and formalities, compromising how quickly GBEs can do things.

• Productivity may be lower than private-sector businesses as there tends to be a lack of accountability in the public sector.

Business objectives

are the goals a business intends to achieve

Profit

is the total revenue earned minus total expenses incurred

Profit (business objectives)

• Profit = revenue greater than expenses.

• Profit can be distributed to owners.

• In private limited and public listed companies, profit is essential to pay shareholder returns.

• Profit can fund business growth (e.g., advertising, website, new/enhanced products, skilled employees).

• Businesses aim to reduce costs and increase revenue to maximise profit.

Market share

is a business’s percentage of total sales within an industry

Market share (business objectives)

• More sales = higher market share.

• Businesses aim to increase market share as it shows competitiveness.

• Strategies to increase market share:

  • Develop products with new technology.

  • Build customer loyalty for repeat sales.

  • Hire skilled employees for quality output.

  • Use advertising to attract customers.

  • Offer lower prices to boost sales.

• Benefits of higher market share:

  • Increased sales from loyal customers.

  • Word-of-mouth attracts new customers.

  • Ability to buy supplies in bulk at discounted prices.

To meet shareholder expectations (business objectives)

• Shareholders are the owners of private limited and public listed companies.

• They invest money by purchasing shares in the company.

• Investment helps the business grow and develop, opening new market opportunities.

• Shareholders expect a financial return on their investment.

• Returns come through:

  • Dividends – portion of company profits paid to shareholders.

  • Capital gains – profit made when shares increase in value and are sold at a higher price.

To fulfil a market need

is when a business fills a gap in the market, which involves addressing customer needs that are currently unmet or underrepresented by other businesses in the same industry.

To fulfil a market need (business objectives)

• To fulfil a market need, a business must identify its target market and their needs.

• Providing goods/services that meet needs increases sales, market share, and revenue.

• Meeting customer needs builds customer loyalty.

• Customer loyalty ensures consistent revenue and supports profitability.

To fulfil a social need

is improving society and the environment through business activities.

To fulfil a social need (business objectives)

• Social issues: homelessness, substance abuse, domestic violence, discrimination against Indigenous Australians, refugee/asylum seeker mistreatment.

• Environmental issues: climate change, pollution, species extinction, landfill waste.

• Businesses may address social, environmental, or both types of issues.

• Modern businesses cannot solely focus on financial objectives.

• Must implement strategies to meet social needs alongside other goals.

• Social enterprises primarily focus on fulfilling a targeted social need.

Efficiency

is how productively a business uses its resources when producing a good or service.

Efficiency (business objectives)

• Businesses aim to maximise use of resources: time, money, effort, employees, materials.

• Efficiency = productive use of resources without waste.

• Businesses continually assess ways to improve productivity across departments.

• Optimising resources can:

  • Minimise production costs

  • Reduce waste

  • Shorten production time

• Improved efficiency positively impacts business performance and achievement of objectives.

Effectiveness

is the extent to which a business achieves its stated objectives.

To improve effectiveness (business objectives)

• Competitiveness requires continuously setting targets.

• Effectiveness = extent to which a business achieves its objectives.

• Can measure effectiveness at different levels:

  • Small-scale: individual employee performance.

  • Mid to large-scale: business-wide objectives.

• Businesses improve effectiveness by enhancing performance to meet targets and goals.

Stakeholders

 are individuals, groups, or organisations who have a vested interest in the performance and activities of a business.

Owners

are individuals who establish, invest, and have a share in a business, often with the goal of earning a profit from its operations. In public listed and private limited companies, owners are known as shareholders.

Owners info

• Owners are internal stakeholders who provide initial capital for the business.

• Owners invest into the business in which investment enables business growth and development.

• Owners expect to benefit from the business’s success.

• Vested interest - Receiving a return on their investment, often through business growth, in the form of increases in share price, dividends, or profits.

Managers

are individuals who oversee and coordinate a business’s employees and lead its operations to ultimately achieve the business’s objectives.

Employees

are individuals who are hired by a business to complete work tasks and support the achievement of its objectives.

Customers

are individuals or groups who interact with a business by purchasing and utilising its goods and services.

Suppliers

are individuals or groups that source raw materials, component parts, and processed materials and sell them to a business for use in the production of its goods and services.

General community

is the individuals and groups who are impacted by a business’s operations and decisions, often because they are located in close proximity to the business.

Autocratic mamagement style

involves a manager making decisions and directing employees without any input from them

Autocratic management style info

• Autocratic management style: manager retains centralised control over all decisions.

• Communication is one-way, top-down from manager to employees.

• Employees do not participate in decision-making.

• Employees are expected to follow the manager’s directions.

Persuasive management style

involves a manager making decisions and communicating the reasons for those decisions to employees without their input.

Persuasive management style info

• Persuasive management style: employees have little input, similar to autocratic.

• Manager explains reasons for business decisions to employees.

• Communication is one-way, top-down, but builds trust and credibility.

• Decision-making remains centralised with the manager.

Advantages of autocratic and persuasive management styles

• Employees may feel a greater sense of involvement and engagement in the business when given explanations of business decisions. Thus, increasing employee morale and motivation.

• Employees have clearly defined roles with reduced responsibility and risk, as they only have to follow the manager’s instructions.

• Quick decision-making allows for work processes to be completed faster, leading to improvements in productivity which may increase revenue.

Disadvantages of autocratic and persuasive management styles

• All solutions and ideas come from the potentially limited views of the manager alone, as there is no contribution from employees.

• Lack of involvement in decision-making processes can lead to low employee motivation, as they feel undervalued due to their inability to contribute.

• May increase costs associated with replacing employees as staff may leave the business due to low motivation.

Consultative managment

involves a manager seeking input from employees on business decisions but making the final decision themselves.

Consultative management info

• Consultative management style: uses two-way communication between managers and employees.

• Employees can provide input on business decisions.

• Managers consider feedback, ideas, and opinions, making employees feel valued.

• Decision-making remains centralised; manager has final authority.

Participative management

involves a manager sharing information with employees so that employees can participate in decision-making

Participative management style info

• Participative management style: managers and employees share information and decision-making.

• Uses two-way communication for open discussions.

• Decisions are agreed upon collectively by manager and employees.

• Decentralised control is present in this style.

Advantages of participative and consultative management styles

• Management can gain multiple perspectives and suggestions from employees who carry out the work, which can lead to more informed decision-making outcomes.

• Employees may feel more motivated when asked to contribute their ideas or participate in decision-making, therefore improving their sense of value.

• There is potential for a more positive corporate culture and a supportive work environment.

Disadvantages of consultative and f participative management styles

• Conflict can arise when employees or managers disagree, either due to lack of cooperation among employees or differing views and opinions between employees and managers.

• Decision-making may be very time-consuming due to extensive employee discussion/collating of ideas or collaboration to reach a consensus.

• Some employees prefer to follow directions and may feel intimidated or uncomfortable contributing ideas. (Consultative)

• There is potential for employees to make poor decisions, leading to an inappropriate allocation of business resources and unnecessary costs. (participative)

Laissez-faire management style

involves a manager communicating business objectives to employees and giving them freedom to make decisions independently

Laissez-faire management style info

• Laissez-faire management style: two-way communication between manager and employees.

• Manager communicates broad goals and listens to employee ideas on achieving them.

• Employees have freedom to make decisions, resulting in decentralised control.

• Manager provides support when needed.

• Employees are empowered with high responsibility and ownership of tasks and decisions.

Advantages of laissez-faire management style

• Fosters s an environment in which creativity and innovation are valued, leading to a broader scope of possible decisions.

• Employees may have increased motivation as they feel empowered and trusted in a work environment that fosters creativity

• Collaboration between employees to reach a decision-making outcome can lead to many insights and innovation, and therefore increase sales and profits.

Disadvantages of laissez-faire management style

• Business objectives may not be met by employees due to a lack of direction from managers.

• There is potential for conflict when employees do not cooperate and collaborate with each other and instead insist on implementing their own ideas.

• There is potential for employees to make poor decisions, leading to an inappropriate allocation of business resources and unnecessary costs.

Time (appropriateness of management styles)

• Time available to make decisions influences management style. In emergencies, managers use autocratic or persuasive styles for quick, direct decisions.

• When more time is available, consultative, participative, or laissez-faire styles are preferred, as they allow two-way communication and shared decision-making.

Experience of employees (appropriateness of management styles)

• Employee experience influences management style. With inexperienced employees, managers often use autocratic or persuasive styles, relying on one-way communication and centralised decisions.

• With skilled, experienced employees, managers may adopt consultative, participative, or laissez-faire styles to encourage two-way communication, utilise employee input, and improve decision-maki

Nature of the task (appropriateness of management styles)

• The nature and complexity of tasks affect management style. For simple tasks, autocratic or persuasive styles with one-way communication are suitable.

• For complex tasks, consultative, participative, or laissez-faire styles are more effective, as two-way communication and employee input can lead to better solutions.

• ManManagers may also rely on employees’ specialised knowledge for complex issues, while handling routine tasks themselves with minimal input.

Manager preference (appropriateness of management styles)

• A manager’s personal preferences influence their management style. Managers who desire high control often use autocratic or persuasive styles with centralised decision-making.

• Those comfortable with less control may adopt consultative, participative, or laissez-faire styles, encouraging two-way communication and employee involvement in decisions.

Planning (management skills)

is the process of determining a business’s objectives and establishing strategies to achieve these aims

Planning features (management skills)

• Planning is essential for achieving business objectives. Managers outline goals and develop policies and procedures through strategic, tactical, and operational planning. 

• Planning improves organisation, guides decision-making, helps allocate resources efficiently, and identifies alternative options, increasing the likelihood of successfully meeting business objectives.

Decision-making (management skills)

is the skills of selecting a suitable course of action from a range of plausible options.

Decision-making features (management skills)

• Managers are central to decision-making and can adjust employee involvement based on their management style. Decisions may be centralised (manager-led) or decentralised (shared with employees).

• Effective decision-making involves evaluating the business environment, weighing advantages and disadvantages, and selecting the option that best aligns with business objectives.

Communication (management skills)

is the skill of effectively transferring information from one party to another

Communication features (management skills)

• Managers rely on communication to achieve business objectives. They interact with people across operations, HR, and finance, sharing information clearly and responding to verbal and non-verbal cues.

• Effective communication involves providing feedback, offering constructive criticism, listening to employee input, and explaining decisions, which helps maintain professional relationships and ensures smooth business

Delegation (management skills)

is the skill of assigning work tasks and authority to other employees who are further down in a business’s hierarchical structure.

Delegation features (management skills)

• Delegation allows managers to assign tasks to employees while retaining ultimate responsibility for outcomes. It is used when time constraints, lack of experience, or task complexity make employee input more suitable.

• Effective delegation requires selecting capable employees, trusting them to make decisions, and ensuring tasks are completed to standard. This benefits the business by utilising employee expertise and allows managers to focus on tasks only they can perform, improving overall efficiency and achievement of objectives.

Interpersonal (management skills)

is the skill of creating positive interactions with other employees, to foster beneficial professional relationships

Interpersonal features (management skills)

• A manager’s interpersonal skills are essential for building positive relationships with employees, which can boost satisfaction, productivity, and overall business success.

• Managers use these skills by giving positive feedback, understanding employees’ work approaches and motivations, and acknowledging their personal backgrounds professionally.

Leadership (management skills)

is the skill of motivating others in order to achieve a business’s objectives.

Leadership features (management skills)

• Managers serve as role models, setting standards for workplace conduct and influencing employee behaviour.

• By demonstrating strong leadership, sharing the business’s vision, and fostering a positive, inclusive culture, managers can motivate employees to understand the importance of their contributions, boosting productivity and supporting overall business success.

Skills for autocratic management

• Planning - All business decisions are made by the manager, therefore, they are responsible for assigning resources needed to achieve business objectives.

• Decision making - A manager’s centralised control over business decisions means that they must be able to select a suitable course of action from a range of plausible options.

• Communication - A manager’s instructions must be clear and concise so unskilled workers can achieve an adequate understanding of their work tasks. + Feedback is provided to employees, but is not received by the manager due to one-way communication.

Skills for persuasive management

• Planning - All business decisions are made by the manager, therefore, they are responsible for assigning resources that are needed to achieve business objectives.

• Decision making - A manager’s centralised control over business decisions means that they must be able to select a suitable course of action from a range of plausible options.

• Communication - Managers must give clear and concise instructions and explanations for decisions so employees understand how to complete tasks correctly. Feedback is provided to employees, but one-way communication means the manager does not receive input from them.

• Delegation - A manager decides which complex tasks can be assigned to employees who possess the necessary skills and knowledge to complete them appropriately.

• Interpersonal - Managers provide employees with reasoning for the business decisions they make, which can foster trust and promote professional workplace relationships.

Skills for consultative management

• Planning - All business decisions are made by the manager, therefore, they are responsible for assigning the resources for strategies that are needed to achieve business objectives.

• Decision making - Centralised control means that only managers are responsible for considering all possible decision-making options and selecting the most appropriate direction for the business.

• Communication - Managers should provide clear and concise instructions so employees understand how to complete tasks efficiently. They also receive and interpret feedback from employees during collaborative processes to inform decision-making.

Skills for participative management

• Communication - Managers should facilitate employee discussions to coordinate work and achieve business objectives efficiently. They also receive and interpret feedback from employees during collaboration to make informed decisions.

• Interpersonal - Managers should understand each employee’s work approach to optimise productivity, as failing to build positive professional relationships can hinder the achievement of business objectives.

• Leadership -Managers should share the business’s vision and purpose to motivate employees, and lead by example to influence teamwork, enhancing overall efficiency and effectiveness.

Skills for laissez-faire management

• Communication - Managers should facilitate employee discussions to coordinate tasks and ensure timely, high-quality completion. They should also receive and accurately interpret feedback from employees during collaboration to support informed decision-making.

• Delegation - Managers should delegate tasks based on employees’ experience and knowledge, giving highly skilled workers authority over significant responsibilities while ensuring they are competent for the role.

• Leadership -  Managers should share the business’s vision and purpose to motivate employees and lead by example to improve teamwork, enhancing overall efficiency and effectiveness.

Coporate culture

is the shared values and beliefs of a business and its employees.

Official corporate culture

involves the shared views and values that a business aims to achieve, often outlined in a written format.

Official corporate culture description

Official corporate culture includes formal documents like mission and vision statements, policies, training procedures, symbols (logos, slogans), codes of conduct, and uniforms. It reflects a business’s intentions and unites employees’ approaches to work, influencing external perception and the business’s ability to achieve objectives.

Examples of official corporate culture

Shared objectives

• Example = vision/mission statements (example)

• Effect = Highlights what the business aspires to achieve, providing a common goal for employees.

Policies

• Example = Established policy and procedure documentation, code of conduct.

• Effect = Used to create standards for the behaviour of employees in the workplace.

Uniform

• Example = Regulations around employee attire

• Effect = Unites employees, and promotes a business’s professional reputation.

Real corporate culture

involves the shared values and beliefs that develop organically within a business, and are practised on a daily basis by its employees.

Real corporate culture description

Real corporate culture consists of the unwritten rules and behaviours that shape how employees interact within a business, influenced by factors like office layout, staff diversity, management styles, hiring practices, and workplace rituals. While official culture reflects a business’s ideals, real culture shows actual operations. Aligning real and official culture fosters employee connection, motivation, and improved business performance, supporting the achievement of objectives.

Examples of real corporate culture

Type of employees

• Example = hiring criteria, staff diversity

• Effect = A business chooses which employees to hire and they should be carefully selected both for their technical skill and their ability to uphold the business’s values.

Business ideologies

• Example = celebrations, rituals

• Effect = Highlight the standard practices and expectations of employees within the business.

Management styles 

• Example = Autocratic, persuasive, consultative, participative, and laissez-faire styles.

• Effect = Affects the relationship between managers and their employees, and therefore impacts their interactions in the workplace.

Sims between official and real corporate culture

• Both official and real corporate culture are concerned with the shared values and beliefs of people in the business.

• Fostering both a positive official and positive real corporate culture can lead to improved business performance.

• Both official and real corporate culture aim to change the way employees interact with each other and the business.

Differences between official and real corporate culture

• Official corporate culture is often written in business documents, whereas real corporate culture is usually unwritten.

• Official corporate culture is institutionalised by formal documents and rules, whereas real corporate culture develops organically in unwritten interactions between employees.

• Official corporate culture includes the ideals of businesses, whereas real corporate culture includes what occurs in actuality.