Every day we face many consumer, financial, legal, business and employment choices. Business Education helps us to make informed and responsible decisions. A

Business and economic systems

In this part, you will understand: • business environments • the nature of systems and subsystems • production and markets • the resolution of business and economic issues.

1 Business environments

Whenever you step outside your home, you interact with some type of system or business organisation. It may be the transport system, a retail business or a government department. In fact, even within your home, you can have such interaction through the Internet or on the telephone. In this chapter, you will learn how business organisations operate within community systems and how they are regulated.

You will: • compare business organisations • analyse their purposes and structures • identify how businesses fit within industry types • identify and investigate the need for systems and businesses to be regulated • understand the role of regulatory bodies in Queensland and Australia. Key terms public company: business owned and operated by an unlimited number of people called shareholders. asset: item of value that a business owns and that It has limited liability, and the shares may be can be given a monetary value bought and sold on the stock exchange. business: the organised effort of individuals to quaternary industry: an industry involved in the produce and sell, for a profit, the products that transfer and process of information and knowledge satisfy individual needs and wants quinary industry: an industry that provides domestic consumer: a person who purchases goods and services, many of which were once carried out by services to satisfy needs and wants people within their own homes cooperative: a group of people who join for a raw materials: material as it exists in nature before it common interest is treated in any way export: a good or service sold to overseas countries secondary industry: an industry in which raw franchise: the buying of the rights from another materials are taken from the primary sector and business to distribute its products under its name processed into a finished or semi-finished product franchisee: an individual or organisation that sole trader: a business owned and operated by one purchases a franchise person franchisor: an individual or organisation that grants a stock exchange: the place where shares in public franchise companies are bought and sold goodwill: the value attached to the reputation of a tertiary industry: an industry that provides a service particular business for other people incorporation: the process that companies go trademark: a brand name or design that is officially through to become incorporated — that is, to registered become a registered company and a separate legal trust: a relationship in which one person (the trustee) entity holds property (the trust property) on behalf of industry: a business sector involved in similar types another (the beneficiary) of production unlimited liability: describes a situation where a legal entity: a business that has legal recognition and business owner is personally responsible for all the carries associated rights and responsibilities debts of his or her business want: thing that is not essential for survival but that limited liability: an obligation by a business owner to we would like to have pay off debts only to a limited amount in the case of business failure — usually the amount invested need: thing necessary for survival, such as water and food non-profit organisation: organisation that operates in order to provide social, educational, religious and other services, rather than to earn a profit partnership: a legal business structure that 2 to 20 people own and operate with the aim of making a profit primary industry: any industry that is involved in growing, producing or extracting natural resources private company: business owned and operated by between 2 and 50 private owners. The public cannot buy shares in a private company. profit: the money earned by a business that is in excess of costs — that is, the money left over after expenses are covered. Mathematically, it is simply the income from all sources less all costs and expenses. 1.1 Business organisations

Today, consumers depend on a wide range of operate in order to provide social, educational, businesses to provide them with the endless range religious and other services rather than to earn a of goods and services they require. Without these profit. The Salvation Army and World Vision are businesses, life would be more difficult. examples. Such ‘businesses’ are called non-profit organisations. What is a business? A business is any organisation that produces and How are businesses organised? sells, for a profit, the goods and services that Businesses can be organised in five main ways. satisfy our needs and wants. Some organisations These ways are described below.

A sole trader is a business that is owned and operated by one person. It is the most common type of business in Australia. A sole trader business can operate in almost any field. Usually, however, sole traders are stores, cafés, newsagents and hairdressers as well as A private company usually trades such as plumbers has between 2 and 50 private and electricians. owners called shareholders. These The sole trader receives businesses tend to be small to all the profit and suffers medium in size. Often, they are all the losses. He or she family-owned. Shares in private has unlimited liability. companies are offered only to This means he or she can those people the business wants be forced to sell personal A partnership is a business usually owned and as part-owners. This is why it is assets such as the house operated by between 2 and 20 people, called called a ‘private’ company. or car to pay for business partners. The partners sign an agreement that A private company must have debts. A sole trader records, for example, how profits and losses are the words ‘Proprietary Limited’, usually has only one to be shared, the partners’ roles and how to abbreviated to ‘Pty Ltd’, after its person’s name in its dissolve the partnership. Together they decide name. The main advantage of business name — for how best to operate the business. It is common a private company is that example, Maria’s Café. for people with similar skills — such as doctors, shareholders have limited If the business name is solicitors and dentists — to form a partnership. liability. This means that if the different from the owner’s Partnerships tend to have the names of the business cannot pay its debts, a name, the sole trader partners in the business name — for example, shareholder loses only the money must register the business Harries and Davidson Accountants. Partnerships she or he has invested in the name. have unlimited liability. business. 6 Part A: Business and economic systems KNOW AND UNDERSTAND 1 What is a business? 2 List three non-profit organisations. 3 Select the most appropriate word from the list below to complete the sentences that follow. public personal beneficiary sole trader private limited stock exchange liability unlimited two twenty A business entity with one owner is called a . This person faces liability, which means he or she can be forced to sell his or her assets to pay for the debts of the business. Partnerships normally consist of between and partners. Partnerships have unlimited . There are two types of companies, private and . A company has between 2 and 50 private shareholders. Shares in public companies are bought and sold on the . Companies have liability. In a trust, the trustee holds property on behalf of the . 4 In your notebook, complete this table to show how each of the businesses below is owned. The first A public company can have an unlimited number of one has been completed for you. shareholders. The general public may buy and sell shares in these companies. This is done through the stock Sole Partnership Private Public Trust exchange. Most public companies are large. Examples trader company company include Westfield, Billabong and Woolworths. Shareholders in public companies have limited liability. Beck’s Pty Ltd A public company must have the word ‘Limited’, abbreviated to ‘Ltd’, after its name. Beck’s Pty Ltd The Jones Family Trust M&M Communications Tyler & Kelly Tip Top Pty Ltd Tai’s Take-away CGM Ltd 5 In groups of four or five, decide what form of business ownership is appropriate for: (a) a small bicycle shop that offers personal and professional advice by the owner (b) a national retail chain that would require $589 million to establish (c) a suburban hairdresser (d) a medical clinic. PROPOSE 6 You are planning to establish the following types of business. What form of business ownership would you prefer? (a) A bicycle shop offering professional and personal advice (b) A family cattle stud specialising in breeding programs (c) A travel agency that you wish to expand to five outlets within two years (d) A national retailer that would require $467 million to establish A trust is often used to minimise taxation and preserve (e) A solicitor’s practice offering a range of legal family assets. One person (the trustee) holds property services. (the trust property) on behalf of another person (the beneficiary). 7 Business environments 1. 2 Analysing business organisations

Business organisations are all designed to suit the • minimum requirement (under the law) of three particular needs of the people who establish them. directors, two of whom must live in Australia Businesses have different structures and legal • requirement to publish an annual report that responsibilities and it is important to understand clearly states its financial position. the differences, for example, between a limited lia- bility company and a private enterprise operation. Franchises It’s no wonder that people spend so much on legal In recent times, franchising has also become a very advice when establishing a business or resolving a popular form of business structure. A franchisor is business dispute! the individual or organisation that grants the Companies franchise, and the franchisee is the person who purchases the franchise. Most franchisees then In Australia, all companies undergo a process operate their business as either a sole trader or in known as incorporation. This involves a business partnership with another person. The benefit to being created as a legal entity in its own right and the franchisee is that he or she is granted an treated as a separate entity from its shareholders. instantly recognisable business name and can In other words, the company rather than individual immediately start to draw on the goodwill of that shareholders is liable for the debts created through business. The franchisee also receives training in its operation. terms of the technical aspects of operating the busi- Private companies ness from the franchisor, and assistance with busi- ness management principles. In return, the Private companies are not listed on the Australian franchisee provides the start-up fees and labour, and Stock Exchange. They have a limited liability agrees to uphold the terms and conditions of the structure, and therefore shareholders cannot be franchise agreement. forced to sell personal assets to pay the company’s debts. However, there are some exceptions to this situation. In some instances, the directors of the company will be asked to give a personal guarantee when financial institutions are giving loans. In these cases, the person who offered the personal guarantee might lose his or her own assets to pay the debts of the business. If company directors engage in mis- leading behaviour or recklessly borrow money, they can be held personally responsible for such acts. Criminal charges may follow, with lawsuits being brought under the code of civil law. Public companies In contrast, public companies are listed on the Australian Stock Exchange and their shares are available for purchase by members of the general public. These companies tend to be large in size and can attract investment quickly. The key features of Bakers Delight is a franchise operation. a public company are as follows: • unlimited number of shareholders Cooperatives • no restriction on transfer of shares between Another form of company is a cooperative, where people or the amount of money that can be raised a number of people combine for a particular through offering shares purpose. Typical cooperatives involve farmers, com- • prospectus issued when selling shares munity education centres and credit unions. 8 Part A: Business and economic systems One of the most successful cooperatives in affairs, drawing on their expert knowledge of the Australia is the Ricegrowers’ Co-operative Limited, specialist nature of their work. They also reduce which trades as SunRice. The benefit of a costs by streamlining their operations to ensure cooperative is that people who work in the one maximum efficiency in the delivery of goods and industry can join together to manage their own services.

Case study — David Brown started to pick up all of the jobs that other You can’t start from a more difficult franchisees didn’t want to do around his position than where David started. territory. David never says no to a customer Ten years ago, he had $20 in the request, and this ‘can do’ attitude brings bank, and was a recovering repeat business and referrals back to him. alcoholic. David then discovered The VIP Lawnmowing business continued Paul Clitheroe’s first book Money to grow and David now has an annual and started saving $2 per day in a turnover of between $140 000 and jar as Paul suggested. $180 000. David’s savings habit has not He did not get too ambitious, as deteriorated either, and his daily savings he found that if he tried to put amount has grown to $45 per day. He more away, he was taking it back initially owned several investment out before the week was out. In properties, but has now sold them and is June 1995, David was able to concentrating on his substantial share purchase a VIP Lawnmowing portfolio. David recently purchased a new Franchise, and continued his BMW for cash as a reward to his wife and savings habit. He also managed to teach his customers family for sticking with him through the bad to save the same way, so they had the money ready to times, and they are now enjoying the benefits of his pay him. savings and work ethic. David’s basic commonsense also flowed into the As David says, ‘You don’t know how good it feels running of his franchise. In the same manner that he when the girls ask for something and you can just pull took on board all the suggestions in the Money book, the cash out of your pocket’. Some good advice from he also religiously applied all of the principles outlined David is to ‘.. . find a financial planner and stockbroker in his VIP training manual. By following all of the that you can trust. It may cost money, but it is worth it’. suggestions to the letter, his business grew. He also Source: VIP Lawnmowing

KNOW AND UNDERSTAND 5 Outline the key advantages and disadvantages in 1 Define the following terms: establishing a business through a franchise (a) proprietary company agreement. In your answer, refer to the case study of (b) limited liability David Brown. (c) public company. 6 What are the benefits to farmers of joining a cooperative? 2 What are the essential differences between a private 7 Under what circumstances will the directors of a and public company? company be personally liable for the company’s 3 Write the following words in a sentence to show debts in the event of a collapse? their meaning: 8 Go to www.jaconline.com.au/businesseduqld and (a) incorporation click on the Billabong, CSR or SunRice weblinks. (b) goodwill (a) What is the legal nature of the company (e.g. (c) franchisee private, public, cooperative)? (d) franchisor (b) Is the public allowed to purchase shares in the (e) cooperative. company? 4 Why does the law require at least two directors of (c) What are the main areas of operation of the public companies to live in Australia? company?

9 Business environments 1. 3 Businesses within industries

The situation today Primary industry Over the last 100 years, the types of goods and A primary industry is one that produces raw services produced by businesses have changed a materials (such as fresh fruit) from what nature lot. This is evident from the industries in which has provided. All types of farming, mining, fishing, businesses operate. The three main industries are grazing and forestry are primary industries. primary, secondary and tertiary. Primary industries provide all our food. As well, approximately 60 per cent of all our exports are Industry sector primary industry products.

Primary Secondary Tertiary

Quaternary Quinary

The industry sectors

The table below shows the relative size of each industry sector at fixed times over the last 100 years. Since 1900, occupations have shifted away from the primary industry towards the tertiary industry.

A farmer works in a primary industry. Interpret a table A table provides a range of data, arranged in columns Secondary industry (reading down) and rows (reading across). It presents Secondary industries turn raw materials into a great deal of information in a small amount of finished or semi-finished products. For example, space. iron ore, coal and limestone are turned into steel — Proportion of employment by industry in Australia, a semi-finished product. Steel is then used to 1900 to 2000 (%) manufacture cars — a finished product.

Year Primary Secondary Tertiary

1900 34 20 46

1920 27 22 51

1940 21 25 54

1960 12 28 60

198082072

2000 5 21 74

Source: Data derived from Year Book Australia 2001 • Note column and • Look for steady • Note any row headings, and patterns especially the table heading. (increasing or high or These give decreasing data) especially meaning to the and for unusual low figures. data presented. results or trends. Car workers and steelworkers are secondary industry employees. 10 Part A: Business and economic systems Tertiary industry Tertiary industries provide services for others. Retailers, dentists, bankers and solicitors all work in tertiary industries. Over the last 50 years, the number of people employed in tertiary industries has grown rapidly. Today, three out of every four employees work in this sector. The growth has been so fast that the tertiary industry has been broken down into the quaternary industry and quinary industry.

Sales assistants are A teacher is a quaternary industry tertiary industry employee. employees. The number of people employed in information processing industries is expected to increase in the future. Expanded Internet and e-commerce job opportunities will foster this growth. Quinary industry The quinary industry is made up of domestic services, many of which were once carried out by people within their own homes. Hospi- tality, childcare, domestic cleaning Quaternary industry and home maintenance services The quaternary industry is made up of ser- are examples of quinary industry vice industries involved in the transfer and services. They include both paid processing of information and knowledge. and unpaid workers. Telecommunication, property, computing and education are some examples. A chef is a quinary industry employee.

KNOW AND UNDERSTAND (a) In which year in the table was the proportion of 1 What is meant by the term ‘industry’? people employed in the following industries at its 2 List the three main types of industries. highest and lowest? 3 In your notebook, construct a table like the one below. (i) Primary (ii) Secondary (iii) Tertiary In the correct columns, insert the jobs from the list that follows. The first one has been done for you. (b) Which industry experienced the greatest increase in employment, and which the greatest decline Primary Secondary Tertiary Quaternary Quinary during the twentieth century? (c) Which industry was the most stable, with Orchardist regard to employment, during the twentieth century? Lawyer Computer operator Teacher Newsreader 5 Collect a series of pictures that show all the different Chef Real estate agent Child carer Miner Farmer Tow-truck driver Grazier Secretary types of industries involved in making one particular Dentist Factory hand Welder Surgeon product. Carpenter Cleaner Journalist Writer 6 In small groups, brainstorm these questions: PROPOSE (a) Why has the tertiary sector grown so rapidly over 4 Look at the table showing the proportion of the past 50 years? employment by industry in Australia, 1900 to 2000, (b) Why are there so many people today employed in and answer the following questions. the quinary industry?

11 Business environments 1. 4 Regulating business and economic activity

Legal and government regulations per annum must register for an Australian busi- Business owners may sometimes feel they are ness number (ABN). overregulated. Licences, permits, approvals and Under the Queensland Business Names Act 1962, authorities must all be taken into account. All busi- every business name must be registered, except ness owners have a legal obligation to observe laws when the name is that of the owner and then it is and regulations when commencing and operating a optional. But if something is added to a personal business. This can be frustrating at times, particu- name, such as ‘Pty Ltd’, ‘Motors’, ‘and Associates’ or larly when more than one level of government is ‘and Co.’, then it must be registered. This is to stop involved. The consequences, however, of failing to anyone else from trading under a similar name. comply with regulations could be serious. If the business name is a crucial part of the Business owners should consult a solicitor, business’s operation, then it should also be regis- accountant or the Queensland Department of State tered as a trademark with the federal agency Development and Innovation to clarify the laws responsible for intellectual property (IP Australia), governing their business operations. which administers the Trade Marks Act 1995 All three levels of government (federal, state and (Cwlth). local) have regulations that business owners must follow. The regulations are needed primarily to pro- Company registration mote fairness, protect consumers and encourage (incorporation) efficiency. The following legal requirements — busi- When companies go through the process of ness and business name registration, company incorporation, they: registration and local government regulations — are 1. lodge an application with the Australian Securi- examples of some of the main regulations. ties and Investments Commission (ASIC) and Business and business name receive a Certificate of Incorporation registration 2. complete two compulsory sets of documents: the Since the introduction of a goods and services tax memorandum of association and the articles of in Australia, businesses earning more than $50000 association

Ownership Consumer protection Employees • Business name registration • Fair trading • Awards • Product labelling • Advertising • Contracts • Superannuation • Patents and trademark • Trade hours • Occupational health and safety • Legal structure • Weights and measures • Equal employment opportunity • Guarantees and warranties • Unfair dismissal Health regulations Taxation • Food and safety program • Pay as you go (PAYG) tax • Food safety code • Company tax Some major legal and government • Payroll tax • Pollution controls regulations on small business • Sewerage and water • Goods and services tax (GST) • Fringe benefits tax (FBT)

Zoning Licences Company structure • Building permits • Liquor • Memorandum of association • Fire safety • Commercial vehicle • Articles of association • Chemical storage • Parking and access • Directors’ role • Trade specific (e.g. plumber, electrician) • Development application • Environmental • Playing of music

Some of the major legal and government regulations on business 12 Part A: Business and economic systems 3. receive a unique nine-digit Australian company number (ACN) that becomes part of the com- pany name and must be displayed on all official correspondence KNOW AND UNDERSTAND 4. pay the required fee to ASIC. 1 Which government department provides advice Once these steps are complete, the company is ready regarding the licences that a business needs to to begin trading. operate lawfully? Local government regulations 2 What are the main objectives of imposing government regulations? Many business owners overlook the importance of 3 What is an ABN? local government regulations. Any business using 4 When should a business name be registered as a premises or land must first seek local government trademark? approval. Commencing trading before approval is 5 List three business activities over which local obtained could result in the closure of the business. government has control. Time, money and energy could have been wasted. 6 What is the purpose of zoning? Local governments have control over the following business activities: PROPOSE • land zoning and the purpose for which a building 7 Using a telephone directory, find: or land can be used (a) five examples of sole traders or partnerships • new development applications and alterations to that would not have to register their name existing premises (b) five examples of businesses that would have • fire regulations, especially the provision of to register their name. adequate fire prevention facilities 8 In groups of three or four, suggest appropriate • parking regulations governing the number of names for the following businesses. Indicate parking spaces that need to be provided which ones would have to register their business • health regulations names. • business signs — the size, shape and location. (a) A café owned by Kira Tobani Two of the most important business activities are (b) A newsagency owned by Garry Barnsley (c) A mobile telephone franchise owned by Huy zoning and health regulations. and Sou Tai Zoning regulations (d) A corner store owned by Mardu Ararney (e) A secretarial service owned by Anna Local government controls zoning regulations. It Wolfenden. ensures activities that do not belong together, such 9 Imagine you are about to open a pizza restaurant. as those associated with factories and residential Investigate what federal, state or local regulations areas, are kept separate. This function assists the you would have to satisfy. local community in terms of planning. 10 In pairs, research the types of licence the When commencing a business, owners must following businesses would need to operate. You enquire with the local council to determine which may wish to use a word-processing application to zoning regulations will affect their business now prepare your report. and in the future. (a) Café owner (b) Publican Health regulations (c) Video arcade owner Local government also imposes health regulations (d) Pest controller under the Food Act 1981 (Qld). Each local council (e) Solicitor supplies businesses (primarily those dealing with 11 Go to www.jaconline.com.au/businesseduqld and food, such as cafés, restaurants, butcher shops and click on the SmartLicence weblink. bakeries) with the regulations and standards they (a) Select two businesses and identify the have to meet in order to obtain a licence to operate. licences that apply to these businesses. Some regulations relate to: (b) Identify the relevant government department(s) that issue the licences. • temperature for food storage (c) Briefly outline the business activities to which • kitchen layout the licences relate. • employee clothing requirements 12 Arrange for the local health inspector to visit the • correct food handling. class. Ask him or her to discuss: A health inspector will assess a premises regu- (a) his or her role larly and often without warning to ensure the small (b) health regulations for a small food-based business owner maintains standards. If problems business occur, then the business is given a period of time to (c) penalties for non-compliance. rectify the situation or it will be closed down.

13 Business environments 1. 5 It’s the law — Commonwealth legislation

The Trade Practices Act 1974 (Cwlth) is one of the most important pieces of legislation in Australia. It has two main purposes: In 2000, McDonald’s Australia Limited was prohibited 1. To protect consumers against undesirable from re-advertising its ‘grilled chicken burger’ as being practices, such as misrepresenting the contents ‘grilled’ after court-enforceable undertakings to the of products or their place of production ACCC. The ACCC successfully argued that the 2. To regulate certain trade practices that restrict extensive advertising of the burger as ‘grilled’ competition. The government also wants to businesses constituted misleading or deceptive conduct, in ensure a number of are operating at breach of s.52 of the Trade Practices Act, and a false any one time in the same market, to avoid the representation, with respect to the qualities and problem of too much power with one group. history of the burger, in breach of s.53(a). The Act applies to businesses in Australia, including The chicken burger was initially cooked in an oven, the commercial activities of government. It is branded and seared, and then cooked between two administered by the Australian Competition and hot plates. The ACCC argued that McDonald’s claims Consumer Commission (ACCC), which is an inde- did not match reality. pendent statutory authority. The ACCC operates nationally for the enforcement and administration of competition and consumer protection laws. for its own gain. The disadvantage may be for a Restrictions on the seller number of reasons, such as age, sickness, illit- The following are prohibited by the Trade Practices eracy or poverty. Act: 3. False representations regarding goods or ser- 1. Misleading or deceptive advertising. Advertise- vices. A false representation is a statement of ments must not use words that are deceptive or fact that is untrue. claim that a product has some specific quality 4. Offering gifts and prizes in connection with the when it does not. Such actions convey a false supply of goods and services and then not pro- impression of the exact nature of the product viding them (see the bizFact at right). Additionally, price 5. Conduct that may mislead the public reductions or specials must be genuine. 6. Bait and switch advertising. This involves adver- 2. Prohibition of unconscionable conduct that occurs tising a few products at significantly reduced where one party to a transaction is at a disadvan- and, therefore, enticing prices to attract cus- tage and the other party takes advantage of this tomers. When the advertised products quickly

Deceptive advertising 14 Part A: Business and economic systems Bait and switch advertising is often misleading and deceptive.

run out, customers are directed (or switched) to The law prohibits a retailer from claiming a higher priced items. product has a particular characteristic that it does 7. Referral selling. This occurs when a business not have. It is illegal, for example, to state that a offers a customer a special deal or special price washing machine is automatic, or that a motor if the customer refers other potential customers vehicle has a certain fuel consumption perfor- to the seller. mance, when it does not. Merchandise quality and 8. Implied conditions or terms, which are the fitness of purpose are also important when it comes unspoken and unwritten terms of a contract. to representing the history or previous use of a These conditions are assumed to exist regard- product. To say, for example, that a motor vehicle less of whether they were especially mentioned has never been used as a taxi or that it has only or written into a contract. The two most impor- been used for short trips when this is not the case tant implied terms relating to customer pur- would be misleading. chases refer to the merchantable quality and fitness of purpose of the product. • Merchantable quality means the product is of a standard a reasonable person would expect In the case of Doherty v. Traveland Pty Ltd (1982), a for the price. It applies to most consumer con- travel agent continued to display brochures tracts. If a consumer purchased a sandwich, advertising a holiday for 13 days when it had been for example, that turned out to be stale, or reduced to 11 days. The travel agency was penalised contained impurities, the sandwich would not $2200 for ‘misleading the public’. be considered of merchantable quality. In the case of Makita (Australia) v. Black and Decker • Fitness of purpose means the product is (Australasia) Pty Ltd (1990), Black and Decker began a suitable for the purpose for which it is being series of advertisements comparing its drill with sold — that is, the product will perform as the those of Makita. The court found that the comparison instructions or advertisements imply. A pair of of the two drills was not accurate and, therefore, the running shorts being sold as football shorts, advertisement was ‘misleading and deceptive’. Black for example, would be a breach of a condition and Decker was not allowed to use the advertisement to supply goods for the purpose for which the and had to correct its advertising. seller knew they were intended — running. 15 Business environments It is misleading to suggest that a product has certain characteristics when it does not.

Breaches of any of these responsibilities can result in penalties of up to $1.1 million for com- panies and $220 000 for individuals. This cost does Federal Court declares Radio Rentals not include legal fees and the cost of adverse pub- licity (see the case study at right). advertising to be misleading Advertisements themed on ‘Rent two, get one rent free’ have been declared to be misleading and deceptive by the Federal Court. Justice French made orders by consent against Thorn Australia Pty Ltd In the case Cool and Sons Pty Ltd v. O’Brien Glass (trading as Radio Rentals in all states and territories Industries Ltd (1981), O’Brien Glass was found to other than South Australia). Justice French found that breach s.47 (exclusive dealing) of the Trade Practices Radio Rentals engaged in misleading and deceptive Act by offering discounts to its customers if the conduct in its ‘Rent two, get one rent free’ advertising customer purchased most of their windscreens from campaign that appeared throughout Australia in O’Brien Glass. In this way, the supplier (O’Brien late 2002. Glass) restricted the freedom of its customers. The ACCC instituted proceedings against Thorn Australia in May 2003. In October and November 2002, Radio Rentals ran a campaign that included Restrictive trade practices extensive television and radio advertising, a distri- bution of almost two million catalogues to households Businesses are prohibited from engaging in any throughout Australia, Internet advertising and a variety practice that restricts trade. Restrictive trade prac- of in-store promotions. The television commercials tices include the following: claimed that consumers could rent any two Radio 1. Exclusionary provisions (s.45) — the Act pre- Rentals products and get a third one rent free. vents individuals or groups setting up arrange- Radio Rentals, however, failed to sufficiently ments that restrict business or competition. disclose important terms and conditions attached to Examples are market-sharing agreements the contracts. These included: whereby businesses agree to divide the cus- • the price and offer being based on an 18-month tomers or allocate customers by the area. consumer rental agreement on selected stock 2. Price fixing (s.45A) — the Act prevents busi- • the offer being available only while the consumer nesses from agreeing to fix, control or maintain continued to rent the other two items the price for goods or services. • the free rental for the third item being for the item with the lowest monthly rental.

16 Part A: Business and economic systems Enrolling in a course? Do your homework first Fair Trading Minister Margaret Keech today warned school Mrs Keech offered the following advice for those contem- leavers seeking work to be wary of employment and training plating privately run training courses. Be wary of courses advertisements that sound ‘too good to be true’. that involve the payment of large upfront fees. Check with ‘The Office of Fair Trading (OFT) has received 111 com- your local TAFE to see if there is a similar course on offer; plaints relating to training courses in the last 12 months,’ Mrs and if so, compare the two courses to work out which is best Keech said. for you. ‘Dubious advertisements for training courses often lure Confirm the validity of any employment guarantees — in people with claims of the potential to make big bucks. some cases these promises only amount to being supplied ‘Recent advertisements in a local newspaper claimed that with a list of contact numbers for people in the industry. Ask participants can make up to $179 per hour on completion of to be put in touch with former students who’ve completed the a proofreading course, but there was no guarantee of course so you can ask them if they found it worthwhile. employment. Under the Fair Trading Act, companies taking advantage ‘These types of advertisements can be misleading and of the unemployed by making false and misleading claims tempt jobseekers who are desperate for work,’ Mrs Keech face fines of up to $202 500. Individuals face fines of up to said. Consumers are also warned to check the credentials of training organisations before signing up. ‘You don’t want to $40 500. You can check if a training provider is registered by invest in a course run by a shonky company — it’s important contacting the Department of Employment and Training’s to ensure the trainers are registered before committing any of registration service toll free (Qld only) on 1800 600 039. your money,’ she said. Source: Queensland Office of Fair Trading, December 2004

KNOW AND UNDERSTAND (a) A small business advertises a particular brand of 1 What are the two aims of the Trade Practices Act? television and states that it is at a cheaper price 2 To whom does the Trade Practices Act apply? than that offered by a competitor. This statement 3 Provide a brief description of: is false. (b) A small business advertises jumpers and claims (a) bait and switch advertising that they are made in Australia when in fact they (b) misleading advertising are made in Hong Kong. (c) price discrimination. (c) A small business advertises that a special deal is 4 Prepare a summary of the aims of the Trade only for one week when in fact it plans to extend Practices Act using the following table. The first it for two months. entry has been completed for you. (d) A small business offers its customers a 10 per cent discount if they provide the names and The aims of the Trade Practices Act addresses of five potential customers for the business. Responsibilities of business Restrictive trade practices 9 Read the bizFact about McDonald’s ‘grilled chicken created by the Act regulated by the Act burger’ on page 14. How did the ACCC determine that McDonald’s had conveyed a false impression No misleading and Exclusive dealing whereby deceptive conduct a supplier imposes a about the nature of its grilled chicken burgers? Do restriction on whom they you agree with the ACCC’s decision? deal with 10 Go to www.jaconline.com.au/businesseduqld and click on the ACCC weblink to answer the following questions: 5 Read the article on training courses. How can job (a) Outline the role of the ACCC. seekers check that advertised courses are (b) Why is its role important in terms of business? legitimate? 11 ‘Government regulations are required to create a 6 What happens to traders who mislead consumers fair and competitive marketplace.’ Discuss. using tactics described in the case study? MANAGE PROPOSE 12 Nyree is the owner of a small business that sells 7 Discuss why the ACCC rigidly enforces misleading computers. She wants to place an advertisement in the local newspaper to publicise a new range of advertising breaches of the Trade Practices Act. laptop computers. In relation to the Trade Practices 8 In each of the following examples, state whether Act, what matters should she consider when there has been a breach of the Trade Practices Act. advertising?

17 Business environments 1. 6 It’s the law — Queensland legislation

Consumer protection The Fair Trading Act prohibits a supplier from: To complement the federal Trade Practices Act, the • making statements or representations that are Queensland Government has its own fair trading misleading or deceptive. A person making the legislation. The Fair Trading Act 1989 (Qld) aims to representation has to prove that it was reason- provide consumers not protected by the Trade Prac- able for the statement to be made. tices Act with the same protection. The Act prohibits • using unconscionable conduct to provide per- a wide range of deceptive and misleading practices. sonal, domestic or household goods or services. To To comply with the law and fulfil their responsi- decide if a supplier has used unconscionable bilities, all business owners should be aware of the conduct consider: Fair Trading Act and how it impacts on the way in – the relative strengths of the bargaining posi- which they conduct their business. tions of the supplier and the customer

If you operate a business in Queensland, you need to be aware of your rights and responsibilities. 18 Part A: Business and economic systems – whether the customer was required to comply refund’ signs are breaking the law. The wording with conditions that were not reasonably neces- should read: ‘Please select carefully because no sary refund will be given if you change your mind’. A – whether the customer was able to understand business must offer a refund if a product: any documents relating to the supply or poss- • is faulty ible supply of the goods or services • is not as described – whether any undue influence or pressure was • does not do the job it was supposed to do exerted on, or any unfair tactics were used • does not match a sample product. against, the customer (or person acting on In Queensland, customers should try to resolve behalf of the customer) issues with the supplier first; but if this is unsuc- – a comparison of the cost and method by which cessful, customers can contact the Office of Fair the customer might have gained the goods or Trading (OFT). The OFT will consider complaints services with another supplier. likely to affect the interests of consumers, investi- • using bait advertising gate the complaints and take action. • engaging in pyramid selling, loan fund schemes and mock auctions The OFT also has a role in educating consumers • ignoring restrictions on door-to-door sales, including about their rights to prevent dangerous or unfair hours, harassment and cooling-off periods situations occurring. It will investigate reported • not honouring warranties. fraudulent practices, such as businesses pretending to be aligned to similar businesses to gain cus- Consumer rights tomers. Customers can access the OFT’s website to Some businesses try to persuade customers that learn how to become a ‘smart shopper’ by choosing they do not have rights. Businesses that display ‘no safe products.

KNOW AND UNDERSTAND (a) Young people have less knowledge of products 1 What is the purpose of the Fair Trading Act? than older people. 2 What is the relationship between the federal Trade (b) Men know more about electrical appliances than Practices Act and the state Fair Trading Act? women. 3 How does the Office of Fair Trading try to protect (c) Most customers buying fashion items are more consumers? concerned about looks than safety, such as the PROPOSE highly flammable nature of materials used. (d) The literacy levels of people today have declined, 4 In each of the following examples, state whether so documentation given to customers should be there has been a breach of the Fair Trading Act. in very simple language. (a) A small business advertises a motor vehicle as 8 Consider the following scenario and discuss the legal having low mileage when in fact it has travelled aspects. 200000 kilometres. A wedding gown sale is held in a factory. It is a (b) A small business owner displays a sign that reads big event. However, there are no dressing rooms, ‘Choose carefully. No refunds given’. so the customers cannot check that the products (c) A small business owner removes any unfair fit. The sign says ‘no refunds’. The seller argues terms from the business’s contracts. he has advertised the conditions of the sale and 5 Go to www.jaconline.com.au/businesseduqld and has reasonable grounds for this type of coercion. click on the Queensland Office of Fair Trading 9 With the increasing volume of information being sent weblink. What catergories are used to provide advice to consumers, is there a need for the law to protect, to consumers? and perhaps favour, the consumer? Use the following EVALUATE example of a situation investigated by the Office of 6 Should there be greater self-regulation by industry Fair Trading to write a response to the question. associations and/or use of a code of ethics? A recent case involved scammers demanding 7 In determining unconscionable conduct, a number of immediate payment of an ‘unpaid fee for live factors are considered. Discuss as a group whether phone sex’ from people who had not used the you believe the following statements to be true or service. The scammers threatened legal action if false. What other factors would need to be taken into payment (usually about $35) was not received. account? Often there is no obvious correct answer They relied on the fact that people felt pressured because the circumstances of each transaction need to pay because of the embarrassing nature and to be examined carefully. relatively small amount of the invoice.

19 Business environments 1.7 It’s the law — local government

Many small business owners overlook the impor- Food safety tance of local government regulations. Local coun- The making and selling of food carries with it cils have control over a wide range of small specific responsibilities. Food must be: business activities, including land zoning, develop- • safe to eat ment applications, fire regulations and signage. • free from contamination However, one important role of local government is • unadulterated. the enforcement of laws affecting food handling to Food poisoning is not only a serious health protect consumers. problem — it can close down a business!

Good food safety practices are an essential ingredient in operating a food business. 20 Part A: Business and economic systems To ensure the highest standards are attained, The Brisbane City Council has a ‘food industry’ under the Food Act 1981 (Qld), any small business webpage that provides business owners with all the that prepares, serves, manufactures or sells food information they need. (Go to www.jaconline.com.au/ must be registered with the relevant local council businesseduqld and click on the Food Industry health department. The local council will charge a fee weblink.) The table below is a summary of the for registration, which has to be renewed each year. information available.

Food industry guidelines available from the Brisbane City Council

Category Information available

Food licensing The Council is responsible for the licensing and registration of most food businesses as part of the Food Hygiene Regulation 1989. The Council is also responsible for ensuring that local food businesses meet Australian food safety laws. Information is available on compulsory licences as well as the best practice licence, which recognises high achievements in food standards.

Food safety To help small businesses achieve safe food handling practices, the Council offers food safety fact sheets on cleaning, cross-contamination, food labelling, food poisoning, food quality monitoring, personal hygiene, pest management, taste testing, temperature control and waste management.

Food safety program The Council’s food safety program is designed for small businesses to identify food risks and provide ways of preventing them. Businesses can register with the Council and download a food safety report that includes the business details, food items and food processes that are used in the business, potential hazards as a result of the food processes used and suggested actions to avoid these hazards. Once a food safety program has been created online, it can be printed out and implemented in the business.

Eco-efficiency The Council provides a self-assessment guide to help small food businesses become more eco-efficient — that is, to minimise the amount of water and energy used and the amount of waste produced.

Note: Above information correct at time of printing

KNOW AND UNDERSTAND 1 What are some of the ways that local government can affect small businesses? 2 Identify three responsibilities associated with selling food. 3 A friend has decided to open a café. She asks you for advice concerning the legal requirements of operating a food business. What advice would you give her? MANAGE 4 Arrange for an environmental health officer from your local council to address your class about his or her role in enforcing the relevant Food Act. Prepare a list of interview questions and send them to the officer before the visit. After the visit, compile a report and arrange for a copy to be sent to the officer. 5 Arrange to interview a representative from your school’s tuckshop. Prepare a report on: (a) safe food handling procedures (b) food regulations with which they must comply. 6 Research the Internet site of your local council to determine what other local laws have been implemented that apply to small businesses.

21 Business environments Check & challenge

Business organisations • Business name • Trademark • Articles of association 1 How is a business different from a non-profit • ABN organisation? Make notes. • ACN 2 True or false? • Alteration to premises (a) A sole trader means there is only one busi- • Fire prevention facilities ness of this type. 5 Mary purchased a pair of sunglasses and received (b) Unlimited liability of proprietary companies a receipt together with a certificate providing means the shareholders’ personal assets are details of the warranty. The warranty stated that protected when claims are made on the the sunglasses had a 12-month guarantee for business assets. defective parts. Helen bought a similar pair of (c) A partnership can have any number of sunglasses. After one week, Mary’s glasses bent members. out of shape, and Helen decided she no longer (d) ‘Pty Ltd’ stands for property limited. liked her pair. They returned to the store and (e) It is possible to determine whether a com- asked for a refund. The store agreed to send pany is private or public by examining the Mary’s glasses back to the manufacturer and legal name of the company. organise a replacement pair. However, the store (f) The stock exchange is a place where shares refused to give Helen a refund or another pair of in a public company are bought and sold. glasses, because she had no grounds for returning (g) One reason for people forming a trust is to the goods. They were of merchantable quality. minimise taxation. This is illegal. Distinguish between a ‘warranty’ and a (h) People who choose to buy a franchise have ‘refund’. Why do you think disagreements over the benefit of established goodwill. warranties and refunds are a common source of (i) Goodwill means that people work in the consumer complaints? organisation for no payment. 3 Write a paragraph to describe how you received goods or services from the primary, secondary, tertiary, quaternary or quinary industries in the past month. Legal and government regulations 4 Allocate each of the following examples of busi- ness regulations to a category in the table below. • Building permits • Weights and measures • Unfair dismissal • Product labelling • Playing of music • Payroll taxation • Memorandum of association • Sewerage and water

Ownership Consumer Employees Health Taxation Zoning Licences Company protection regulations structure

22 Part A: Business and economic systems Investigate local industries

6 Find businesses that are examples of a primary, PRODUCT RECALL secondary, tertiary, quaternary and quinary industry in your local community (that is, your Charlie’s Chips suburb, town or shire). Choose two of your examples and provide a fact file on each of these The following Charlie’s Chips products with a businesses by either visiting and interviewing a best before date of 10 JUN representative or collecting information from the businesses’ websites or other public docu- Charlie’s Chips 50g ments they produce. Include information about Charlie’s Chips 100g the regulations that govern your chosen busi- nesses. Present your findings as a PowerPoint Consumers are advised that the above product is display or as a report. Alternatively, investigate being recalled because of a possibility some packs a franchise business in your local area in a contain fragments of plastic. similar way. As a precaution we are recalling all supplies of this product with the above identification. Any person with the specific products should not consume them. Product recall Please return them to 7 Research and prepare either a two-page written The Charlie’s Chips Company, report or three-minute oral report on product PO Box 242, Coorparoo, Qld 4151, recall. for a full purchase price refund. (a) What is meant by the term ‘product recall’? (b) Under what circumstances should a We ask anyone with family and friends who may product be recalled? have purchased this product to contact them in case they may not be aware of our advertisement. (c) What is the procedure for a product recall? Enquiries can be directed to 1800 444 657 between You may wish to use either a word-processing 9.00 am and 9.00 pm. package or multimedia package to present your report. We sincerely apologise for any inconvenience 8 Governments have passed laws to regulate the caused by this recall. manufacture of products to make manufacturers The Charlie’s Chips Company Ltd conform to certain minimum standards so that ABN 65 057 940 679 products are safe for consumers to use. If prod- ucts that have been sold to the community are later found to be somehow faulty and therefore An example of a product recall notice potentially dangerous, manufacturers are required to recall their products. Manufacturers are required to advertise to make the public Unfair business practices aware of the problem. Look through the daily 9 In groups of three or four, research the fines for newspaper for a week to find product recall breaching local, state or federal laws or regu- notices. They are generally clearly labelled. It lations applied to trading. should be easy to find product recalls of: (a) Is the fining of business owners who breach • food items the Fair Trading Act adequate? • babies’ toys (b) What are some alternative punishments? • children’s clothing Select a spokesperson to present your responses • cars to the rest of the class. • electrical appliances. 10 (a) What is meant by the term ‘code of Cut out at least one product recall notice and practice’? answer the following questions: (b) Discuss whether it is an effective method (a) What is the product? for ensuring better trading practices. (b) Who is the manufacturer or importer? (c) What may happen if a code is broken? (c) What explanation is given for the product 11 Design a poster to draw attention to unfair recall? business practices. Include the phrases (d) Apart from manufacturers being required by ‘misleading advertising’, ‘bait and switch statute to follow recall procedures, manu- advertising’, ‘merchantable quality’, ‘fitness of facturers are very concerned to safeguard purpose’ and ‘pyramid selling’. Find or create the consumer. Why do you believe this is so? cartoons to illustrate the message. 23 Business environments