question- Leon Kane is a qualified cabinet maker. After working in the industry for a few years, he has decided he wants to start his own small manufacturing business, producing high quality furniture for clients.

Although he has the woodworking skills, he does recognise that he lacks experience in running a business. He has saved up over the years and will be contributing $300,000 of his own money but will need to source another $700,000.

The next step in his planning process is that he needs to decide on the business structure.

Look at the following pieces of information and decide what you would recommend. Discuss the pros and cons of each.

OPTION 1: Sole Trader

Leon will take full ownership of the company. He will take out a loan of $700,000 with the bank at an interest rate of 6% p.a.

OPTION 2: Partnership

Leons old mentor, Antonio Lopez is willing to become an equal partner. Antonio is semi-retired, and cant do physically demanding work anymore but has 40yrs experience running successful businesses and will take care of the commercial side of the business, allowing Leon to focus on the manufacturing side of the business. Antonio will also contribute $300,000 into the business. The remaining $400,000 will be a loan from the bank at an interest rate of 6% p.a.

OPTION 3: Private Company

Leon could find additional private investors who will contribute the other $700,000 into the business. They will own 70% of the business and Leon the other 30%. The investors have many business contacts and will offer Leon mentoring and their full support in setting up supply chains and connecting him with potential clients