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Tony Starch is a Perth-based entrepreneur who has been developing artificial intelligence software using a machine-learning algorithm to randomly generate and compose pieces of music.

Tony believes his technology will have numerous applications, particularly in the marketing and advertising space. However, he is aware a lot more work is needed to develop the technology into a commercially viable product. To get things started, Tony will have to take out a loan from the bank.

Tony’s daughter, Morgan Starch, is currently completing her PHD in Computer Science and has been instrumental in helping Tony develop the code. Tony wants to start the business soon because he wants to create a stream of passive income for his retirement and set up a trust fund for his two children, Morgan and James.

Before he can retire, he wants to ensure that any income generated by the business stays in the business for research and development purposes. He would also like to channel some money into the bank accounts of his children on an ad-hoc basis.

Morgan has agreed to join the business in one to two years’ time when she has completed her PhD. She has limited capacity to take on extra work now but has agreed to help Tony when she can, including helping him set up the business. To assist Tony in acquiring the relevant infrastructure for his business, Morgan contacts Kevin Ngyuen – a recent graduate of the Computer Science Ph.D. program. Kevin now runs a very successful server farm called SuperServer Pty Ltd.

Kevin informs Morgan that he will provide her a 33% discount on the first two years of use of the server farm if she signs a contract agreeing to display the SuperServer Pty Ltd logo on Tony’s website and all other promotional material. Morgan seizes the opportunity and signs the contract on the spot. The contract stipulates that the first payment to SuperServer Pty Ltd be delivered within 6 months from the date of signing. Morgan informs Tony of these developments. Tony is pleased and is eager to use the servers from SuperServers Pty Ltd.

At a barbeque with old friends, Tony excitedly tells his friend Lucy about his new business endeavor. Lucy has a law degree from 1998 but has never practiced. Instead, Lucy makes a good living running an online Tarot Card reading business. Due to her enormous success, Tony is listening keenly to Lucy’s advice. Lucy suggests setting up a company with the name “Starch Tech Ltd” and states that the best way for the company to raise capital is by raising “subscription” monies.

QUESTIONS

Tony asks you which type of business structure would be best for his situation. Compare and contrast sole traders, partnerships, and private and public business structures and suggest which would be best for Tony and his specific commercial goals.
Tony is also concerned about the contract with SuperServers Pty Ltd, given it was signed before any business had been formally created. Advise Tony regarding the best way to ensure the contract remains active.
Tony would like to know if you agree with Lucy’s advice and what the best way to set up a company is. He would like you to explain what ‘subscription’ monies are and whether this is the best method to raise capital given his commercial circumstances.

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