Congratulations! You have secured a graduate position with a large firm of corporate advisers. Jessica, a partner in the practice, asks you to attend an 8 am meeting on Monday with herself and Julian Harris, a longstanding client of the firm.

Julian Harris is married to Samantha Patel. They have one child, Pauline, who attends a local private school. Julian is very entrepreneurial and has been running a second-hand and vintage clothing business in Dandenong, Victoria, by himself as a sole trader for the past five years under the business name of Retrofit. A lot of Julian'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 Julian would prefer to buy a building. Currently, Retrofit employs eight staff. Julian has plans to expand the business further. He also wants to diversify into food and catering in the near to medium term.

Julian's mother, Bev, is a retired accountant and he regularly asks her for advice. Bev suggested recently that Julian should structure his business as a company. Julian is unsure about this. He makes an appointment to see Jessica.

Prior to the meeting, you review Julian's file and note that he and Samantha have the following assets.

A family home in Hawthorn with a market value of $1.25 million. There is a mortgage on the property of $561,000. The house is owned by Samantha. The house was previously owned by Julian and Samantha, but when Julian started up his business, it was decided to transfer the house solely to Samantha for asset protection reasons.

A share portfolio. Julian and Samantha 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 Pauline they will be given to her when she turns 21. Julian and Samantha also jointly own a portfolio of blue chip Australian shares currently valued at $145,957.

Two motor vehicles. Samantha owns a BMW Series 7 worth $135 000. Julian owns a VW Transporter Van worth $18,000, which he uses for the business.

Office furniture and equipment. During the course of the year, Julian 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 $8650.

Superannuation. Julian has $190,568 in superannuation and Samantha has $136,000 in superannuation.

In addition, Samantha 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, Julian 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, Julian has a number of questions relating to important issues surrounding the future of his business. The issues arising include the following.

What options does Julian have to structure the Retrofit business?

Julian still wants to run the business he wants to be in control. How would other business structures differ from just Julian as a sole trader?

Is Bev correct to suggest that Julian should set up a company to run the business? Why? What are the advantages and disadvantages of the different types of business structures?