Analyse the internal and external business environments and compare the main forms of business ownership.

What this dot point is asking

The business environment

Every business operates inside an environment of forces that influence its choices. These are usually split into the internal, operating (micro) and macro environments.

The internal environment is made up of factors the business can largely control: its management style, organisational culture, staff skills, resources, products and systems. Because they are controllable, internal factors are often turned into strengths or weaknesses.

The operating environment is the industry the business deals with directly: customers, suppliers, competitors and creditors. A business can influence these relationships but cannot fully control them.

The macro environment is the broad external setting, often summarised by the acronym STEEPLE: Social, Technological, Economic, Environmental, Political, Legal and Ethical forces. These are outside the control of the business, so it must monitor and respond to them rather than dictate them.

Stakeholders often have competing interests. Shareholders may want higher profit through cost cutting, while employees want job security and higher wages. Managing these tensions is a core part of business decision making.

Forms of business ownership

The legal structure a business chooses affects who owns it, who is liable for its debts, how it is taxed, how it raises finance and whether it continues if an owner leaves.

A sole trader is owned by one person. It is cheap and simple to set up, the owner keeps all profit and makes all decisions. The major drawback is unlimited liability: the owner is personally responsible for all business debts, so personal assets such as a house are at risk. The business also has limited access to finance and no continuity if the owner dies.

A partnership has between two and twenty owners (with some professional exceptions). Partners share capital, skills and workload, and a partnership agreement should set out profit sharing and responsibilities. Partners usually have unlimited liability and can be bound by each other's decisions, which is a key risk.

A company (Pty Ltd or public Ltd) is an incorporated business, meaning it is a separate legal entity from its owners (shareholders). This gives shareholders limited liability and the company perpetual succession, so it continues regardless of ownership changes. Companies can raise large amounts of capital, especially public companies listed on the ASX that sell shares to the public. The trade offs are higher set up and reporting costs, more regulation under the Corporations Act, and separation of ownership from control.

A co-operative is owned and democratically controlled by its members, who share in benefits. Each member typically gets one vote regardless of investment, which suits community and primary-producer groups.

Comparing structures

When recommending a structure, weigh up: control (sole trader has total control; companies dilute it), liability (companies and co-operatives protect personal assets), access to finance (companies can raise the most), set up cost and regulation (sole trader is cheapest and simplest), and continuity (only incorporated structures survive owner changes).

In an exam, always link the structure back to the owner's goals and risk level rather than just listing features.