Question
Congratulations! You have secured a graduate position with a large firm of corporate advisers. Hannah Finley, a partner in the practice, asks you to attend
Congratulations! You have secured a graduate position with a large firm of corporate advisers. Hannah Finley, a partner in the practice, asks you to attend an 10:00 a.m. meeting on Monday with herself and Russel Robbins, a longstanding client of the firm. You will be required to take notes and answers to Russel 's queries. Russel Robbins is married to Megan Mays. They have one child, Ellie, who attends a local private school. Russel is very entrepreneurial and has been running a second-hand and vintage clothing business in Albury, NSW, by himself as a sole trader for the past five years under the business name of Pinnaclewear. A lot of Russel's customers are other businesses, both local and overseas. Turnover was $285,000 in the first year and has now grown to over $3 million per annum. The business operates from rented premises, but Russel would prefer to buy a building. Currently, Pinnaclewear employs eight staff. Russel has plans to expand the business further. He also wants to diversify into food and catering in the near to medium term. Russel's mother, Violet, is a retired accountant and he regularly asks her for advice. Violet suggested recently that Russel should structure his business as a company. Russel is unsure about this. He makes an appointment to see Hannah Prior to the meeting, you review Russel 's file and note that he and Megan have the following assets. A family home in Wodonga with a market value of $1.25 million. There is a mortgage on the property of $561,000. The house is owned by Megan. The house was previously owned by Russel and Megan , but when Russel started up his business, it was decided to transfer the house solely to Megan for asset protection reasons. A share portfolio. Russel and Megan jointly own 1000 Telstra shares, which cost them $3.30 per share, and 500 Commonwealth Bank shares, which they bought when they first married. The Commonwealth Bank shares cost them $10.90 per share. The Telstra shares are currently worth $3.09 per share and the Commonwealth Bank shares are worth $61.00 per share. The shares are intended as an investment for Ellie they will be given to her when she turns 21. Russel and Megan also jointly own a portfolio of blue chip Australian shares currently valued at $145,957. Two motor vehicles. Megan owns a BMW Series 7 worth $135 000. Russel owns a VW Transporter Van worth $18,000, which he uses for the business. Office furniture and equipment. During the course of the year, Russel bought computers, desks, other office furniture and shelving for the business which cost him approximately $23 000. Their current value in the financial accounts is $8,650. Superannuation. Russel has $190,568 in superannuation and Megan has $136,000 in superannuation. In addition, Megan works as a sales and marketing manager in the city for a financial services company. She is on a total salary package of $155,000. At the meeting, Russel hands over last financial year's business results and his draft budget of sales and expenses for the coming financial year. The budget for the new year shows expected sales of $3,764,000 and a net profit of $637,979. Issues to be considered During the meeting, Russel has a number of questions relating to important issues surrounding the future of his business. Answer the following questions relating to Russel 's matter: Is Violet correct to suggest that Russel should set up a company to run the business? Why? Given Russel 's individual situation, needs and circumstances, what advantages and disadvantages would a company structure have compared with the other business structures.
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