VENTAS Y DISTRIBUCIÓN

It is challenging but

rewarding. ❜

Interviewer: Why did you decide to purchase an established business? Kristen: We both wanted a business that had a good reputation and a viable

customer base. As well, because we were working in the salon, we knew the customers, suppliers and how the business operated.

Interviewer: Did you have any business experience?

Kristen: Not a great deal. The previous owner had never shown any of her

employees how to keep fi nancial records. The one sensible thing we did do, though, was have prepared a written partnership agreement.

Interviewer: Did you realise at this stage the risks you were taking?

Kristen: No, not really. Michelle and I just thought the customers would keep

on coming. Luckily they did! I think that was because Michelle and I had good reputations and over the years we had built up a large clientele of regular customers.

Interviewer: You started the business as a partnership but now operate it as a sole

trader. How did this come about?

Kristen: Michelle wanted to begin a family, so when she became pregnant she

wanted to leave the business. In our part nership agreement there was a section that dealt with how the business could be sold to one of the partners. We had our accountant value the business and I paid Michelle half that amount.

Interviewer: Was it diffi cult being a sole trader?

Kristen: Yes. At the beginning it was stressful without having someone to share the

burden and talk things over with. However, as time went by, I found that I liked being solely in charge because I could make all the decisions, such as renovating the salon.

Interviewer: Would you like to take in another partner or even become a private

company?

Kristen: Not at this stage. I like the freedom of being a sole trader. It is challenging

but rewarding. As well, operating as a sole trader is quite inexpensive. The only fee I have to pay is the yearly business registration. Also, if the business became too big, I would worry that it could lose the friendly, personal culture I have tried to develop over the years. I have an excellent team and greatly enjoy running the business just as it is. Perhaps the most sat isfying thing about operating as a sole trader is that the success of the business rests solely with yourself.

Interviewer: You have obviously learned a great deal about operating a business

since you fi rst started. What changes to the management of the business have been the most impor tant?

Kristen: Over the last two years I started to organise the fi nancial side of the

business in a more comprehensive way. As well, I have begun a more orderly system of stock ordering and control. Above all else, I spend more time preparing and analysing the fi nancial records. They are the only method of determining whether you are actually making any money. One strategy I have not changed over all the years is the belief that the customer must always be satisfi ed. They are the ones who determine the success or failure of my business.

Snapshot questions

1. State how Kristen and Michelle fi nanced the purchase of the salon.

2. Identify the outside support services used by Kristen and Michelle.

3. Recall why Kristen and Michelle decided to purchase an established business.

4. Outline two new skills they might have had to learn to make the transition

from employees to business owners.

5. Deduce why drawing up a partnership agreement was a sensible thing to do.

6. Explain the process by which the partnership was dissolved.

7. Describe the key advantages and disadvantages Kristen has discovered in

becoming a sole trader.

8. Clarify why Kristen would have to register her business.

9. Evaluate whether being a sole trader is a suitable type of legal structure for Kristen.

Revision

1 Identify the four main legal structures of privately owned businesses.

2 Distinguish between an incorporated and unincorporated business.

3 Clarify why unincorporated businesses are the most common form of legal business

structure.

4 (a) Identify three examples of businesses that might suitably operate as sole traders.

(b) Explain why for each case.

5 Using a telephone directory, identify fi ve examples of: (a) sole traders that would not have to register their name (b) businesses that would have to register their name.

6 Defi ne the term ‘unlimited liability’.

7 ‘The advantages of being a sole trader outweigh the disadvantages’. Assess the accuracy of this statement.

8 Distinguish between a partnership and a sole trader.

9 Identify what you consider to be the two main advantages for a partnership. Justify

your selection.

10 Outline the main purpose of a partnership agreement.

11 In pairs, imagine that you and your friend have decided to go into business together.

Your business will specialise in designing home pages on the internet. Decide on a

business name and then create a brief partnership agreement. Refer to the Biz Fact

(page 38) for ideas.

12 The NSW Offi ce of Fair Trading provides a range of regularly updated information

about the legal requirements of business names. Use the NSW Offi ce of Fair

Trading weblink in your eBookPLUS and answer the following questions.

(a) Outline the purpose of a business name.

(b) Explain who owns a business name.

(c) Describe the process involved in selecting a business name.

Extension

1 (a) Explain why limited partnerships were introduced into some states of Australia.

(b) Examinethe regulations that apply to limited partnerships.

2 Suppose you are a part-time employee working for a sole trader. The owner has

offered you a 35 per cent partnership and you are going to accept. Create a list of

questions you should ask the owner before you sign the partnership agreement.

3 Arrange to interview a partner of a local business. Investigate the following topics. (a) The number of people in the partnership

(b) The advantages of the partnership (c) Contents of the partnership agreement (d) A brief history of the business.

4 ‘An effective partnership is one in which the partners always agree on all matters

related to the business.’ Assess the accuracy of this statement.

2.6

Types of companies

All companies are incorporated enterprises or have gone through the process of

incorporation. This means that the company has become a separate legal entity from its owners (shareholders). The idea of a separate legal entity is referred to as the ‘veil of incorporation’. This separate legal entity means that the company can sue and be sued; it can lease, sell or own property; and it has perpetual succession (this means it will continue to exist even when the owners change).

The process of incorporation is governed by the Commonwealth Corporations

Act 2001, and is administered by the Australian Securities and Investments

EXERCISE 2.3

Weblink

NSW Offi ce of Fair Trading

BizWORD

Incorporation is the process that companies go through to become incorporated, i.e. to become a registered company and a separate legal entity.

Commission (ASIC). For a business to become incorporated, a company name must be registered with ASIC, who will issue a certifi cate of incorporation and an Australian Company Number (ACN). Directors must be appointed to run the company on behalf of the owners. Once incorporated, the company has a separate legal entity to its owners, who are known as shareholders (referred to in the Corporations Act as ‘members’). Incorporation also brings to the shareholders the benefi ts of limited liability.