1. kate is the owner of a very successful business selling women's shoes. Kate's business is expanding rapidly and she wants to update her business structure from that of sole trader to a more appropriate structure. She seeks the advice of her accountant who tells her that she has a number of options, all of which have advantages and disadvantages. What would be your recommendation to Kate and why? What factors would influence your advice?
2. Myra is the only shareholder and director of Kids Clothes Pty Ltd (Kids Clothes) whic makes cheap children's clothing. The company has 10 employees. In the past Kids Clothes hadoperated profitably, however since 2011 it has been running at a loss. In July 2012 Myra paid herself a large bonus.
and then transferred all the remaining assets of Kids Clothes to a new company called Clothing for Kids Pty Ltd. The employees continue to be employed by Kids Clothes. Kids Clothes has no assets and owes each of its employees several thousand dollars in accumulated holiday, superannuation and long service leave entitlements.
A business can take up many different forms, in order to conduct its business activities. In the given case, Kate carries on the sole proprietorship form of business of selling women’s shoes. She is very successful in conduct of his business operations and therefore, wishes to update and expand the existing business structure, i.e., proprietorship concern to other form of business, which include unincorporated association, partnership, limited partnership, trust, limited company or a cooperative society. Each of these forms of business restructuring has its own advantages and disadvantages.
A proper analysis of the different options of business restructuring, along with its advantages and disadvantages are to carefully evaluated:
From the above analysis of the different forms of business to which Kate can upgrade her sole trader business to, the most suitable up gradation of the sole trader firm shall be to form a partnership firm.
Factors to be considered to select the most optimum form of business structure:
The various factors justifying the up gradation of Kate’s sole trader firm to partnership are as follows:
As per Kate’s description of the business given in the case assignment, it will be the most feasible for her to transfer and upgrade her business from sole trader to a partnership form of business, as this restructuring is very expensive and will not require any separate set of laws to be complied with. Kate should enter into a partnership agreement with one or more partners and continue the business.
Introduction: In the given case, there is a transfer of assets of the company to the new company. And, it is also mentioned that Myra, has allowed a large amount of bonus for herself before making payments to employees, on account of their entitlement benefits due by the company.
In the given case, it is discussed that Myra, who is the only shareholder of the company, Kids Clothes Pty Ltd (Kids Clothes) transfers all the assets of the company to a new company, Clothing for Kids Pty Ltd. Along with a transfer of all the employees to the new company. Myra paid a large bonus to herself before making payment of the employee entitlements, which the company was liable to pay.
As stated in the “Employment and employee benefits in Australia”,
In case of insolvency of the company or the transfer of the firm, employees receive priority treatment and priority discharge of liabilities as compared to the shareholders and owners of the company. The employees are even ranked above the unsecured creditors.
According to the stated provisions, the act done by Myra is incorrect, and before making any such payments to herself by means of bonus, she should have discharged the outstanding liability of the employees on account of employee entitlement benefits.
According to ‘Employment business transfers’, the new employer automatically substitutes the old employer and all the duties and liabilities of the old employer is borne by the new employer, there from.
So, if the transfer of employees along with the employment benefits, accrued to them, are transferred by Myra’s company to the new company, then, the new company shall be liable for the previous discharge of liabilities relating to the employees.
No, the employees cannot take an action against Myra, even though she is the only shareholder and thereby, the director of Kids Clothes Pty Ltd (Kids Clothes). If the company has transferred to the new company rights and liabilities of the employees also, then Myra would not be personally liable.
All the entitlements due to such employees from the employer, Myra’s company, shall become the liabilities of new company, Clothing of kids Pvt. Ltd. Also, an employee’s superannuation benefits continue to remain with the employee, unless such benefits have been specifically transferred by the old business to the new company.
The act of Myra is incorrect. But, if the transfer has been made of the assets along with the employee liabilities, to the new company, then the new company shall substitute the old employer and all payments shall be made by the new company in respect of employee entitlements.
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