Gary Reynolds is a sole trader and runs his own business as an architect. Gary tried to expand the business 12 months ago by borrowing $100,000 from Rap Bank, employing two assistant architects and setting up a new office on Mitchell Street, Darwin. Gary now finds that his operational costs and debts are much higher than the revenue coming in from the architecture services he provides. A number of creditors are now pressing Gary for payment, including the landlord who wants to repossess the Mitchell St office because of unpaid rent. These creditors cannot all be paid within contractual terms. Gary, a single father, owns a house which is mortgaged to Rap Bank and various other assets such as two cars and some cash in his bank account.

Explain how Gary's situation might be different if he was a director of a company (eg, 'GR Architecture Pty Ltd'), instead of being a sole trader. Describe the advantages and disadvantages of establishing a company? ( IRAC model answer )