Your friends Adam and Betty have approached you to join them in their business idea. They want to open three beauty salons in the city in which you live. They have identified the shopping centres where the three salons will be opened. They invite you to a meeting where they want to discuss the most suitable business structure.
Adam and Betty would like to manage a salon and if you want to manage the third salon they are happy with that but if you do not want to manage the third salon their friend Charles will be happy to manage the third salon. Charles has no money so he is unable to invest in the business.
Adam and Betty believe they need a total investment of $250,000 but they only have $50,000 each so would be needing $150,000 additional. They are not sure if you would be willing to invest the total amount needed or to seek additional finance elsewhere.
Adam and Betty have not done anything further about setting up the business and were waiting until this meeting to discuss it with you.
Consider the situation above and make sure you address the following questions:
a. Consider the scenario above and choose the two most suitable business structures and compare and contrast the suitability of each.
b. Identify the advantages and disadvantages of starting/investing in the business based on the two business structures you have chosen. Where possible use examples from the facts in the scenario.
c. What is required to set up each of the two business structures?
d. What is the applicable legislation for each of the two business structures?
e. Consider issues of liability. How you will protect investments and assets, based on the business structures you have chosen.
f. Reach a conclusion which business structure and explain why this is the most suitable in this scenario?
QUESTION 2 – EMPLOYING STAFF
You have been asked by the other owners to review some recent employment practices for staff in the salon. You currently employ over the three salons 9 hairdressers. A contract has been provided that Adam has obtained and it is to engage a cleaner to clean the salons. The contract states the cleaner will be “an independent contractor”. The contract requires the cleaner to have their own ABN and they are requested to provide their own insurance. The cleaner is directed to attend every afternoon from 2pm to 5pm. The contract states that the salon will provide the cleaner with all equipment (this includes pink overalls with the salon’s logo). If the salon is extra messy and is difficult to clean the cleaner can request to work until 6pm. The cleaner will be paid at an hourly rate.
Consider the situation above and make sure you address the following questions:
- What is the difference between an independent contractor and an employee?
- What factors should be considered to determine if someone is an independent contractor or an employee?
- What government authority regulates this area of law?
- What other obligations exist regarding employees but not independent contractors?
Sample Solution
