QUESTION 1 [Total = 15 marks]

James and Adrian are starting up their own small business, which involves the development and delivery of an online identity verification service, to which other businesses can sign up for a fee.

James has been working on developing the computer program and delivering the service with the support of friends for some time, with some success; having signed up a few businesses based in Brisbane and becoming a well-known figure in the local industry dealing with identity theft after invitations to speak on the topic at several workshops and conferences, trading under the name of IDSolutions. He has a registered business name and an ABN, but has not incorporated.

Adrian has experience in business and marketing and has proposed that they both invest $30,000 each into leasing some commercial space and engaging professional software developers to work with James, with a view to improving the computer program so as to expand its capacity to cope with a larger load as the business grows. Both James and Adrian are planning to give up other employment and work full time in the business. Apart from the computer equipment and premises leased, the assets of the business will likely consist of licence agreements with a number of businesses who have signed up for the service, James already- established program and the goodwill he has already built up (as well as any IP (intellectual property) they choose to register, such as trade marks).

Advise James and Adrian regarding the options they have in terms of the legal form their business can take, and any considerations they should take into account in making their choice.