You must be the new accountant. I have just met with a new client, Janelle Smith. She runs her own consultancy business and is looking to expand. Janelle has had enough of running the business by herself and has come to us, seeking advice on ways she could potentially structure/ restructure her business.

Jacqui has been operating as a sole trader, providing tax management services for about 3 years. She has accrued a long list of loyal customers. Due to the disruption to the economy and widespread changed practices in people working from home, Janelle has been busier than ever as people seek advice about deductions, and looking to have their tax done by professionals.

Janelle herself currently works from her home, but wants to lease a small shop front on the high street, opposite the station – she expects that this will become busier as people return to offices in 2021. Further, she wants to engage in marketing and promoting her business, and needs to acquire more professional looking office furniture, and upgrade her computer systems.

Including the first year of lease payments, she estimates this will cost approximately $80,000. Further, she wants to hire staff to support her increased workload. Janelle mentioned she had attempted to borrow money to fund the endeavor but the local bank declined her application as she does not have enough security to secure the loan.

Janelle currently rents her home, owns her car worth $15,000 and has $30,000 saved as a house deposit. She does not want to give up control of the day-to-day operations of her business, but would consider offering part-ownership in exchange for some or all of the capital required. She has three friends who are interested in investing. Sarah is an advertising and PR specialist who was recently made redundant and has $35,000 cash put aside for investing. Yingyi is an accountant who is unhappy in her current role, and has $15,000. Pat is a good friend with experience in running companies, but has been associated with two failed businesses. He is quite wealthy.

In our conversation, Janelle identified a number of key questions and concerns, such as:

• Wanting to minimize her overall tax liabilities;
• Wanting to ensure the choice of business structure would help in raising capital;
• Concerns that the wrong choice of business structure may not attract and retain the right employees;
• Wanting to know how she could be protected from any poor management decisions of employees/ partners/ directors; and
• Wanting to know how she could retain control over the day-to-day decisions of the business.

Required:

Please prepare a memorandum of advice for the client. Advise Janelle of the potential ways to structure her business, including the strengths and weaknesses of each option for her specific circumstances. Your advice should include a brief discussion of the strengths and weaknesses of each potential option, noting the specific needs and concerns for the client. You must consider her assets and liabilities when giving advice.

Please set out a summary of advice, and remember to include specific recommendations on what Jacqui should do – as she is paying us for advice!