Regard­less of what size busi­ness you have, when there are mul­ti­ple own­ers, share­hold­ers or investors involved, busi­ness struc­ture agree­ments are absolute­ly vital. These agree­ments are a proac­tive way to save you mon­ey, time and emo­tion­al stress if any dis­putes arise down the track.

In very sim­ple terms, the types of busi­ness struc­tures out­side of sole pro­pri­etor­ship include:

  1. Com­pa­ny: a legal enti­ty sep­a­rate from its share­hold­ers
  2. Part­ner­ship: an asso­ci­a­tion of peo­ple or enti­ties run­ning a busi­ness togeth­er but not as a com­pa­ny.
  3. Trust: an enti­ty that holds prop­er­ty or income for the ben­e­fit of oth­ers

 

What are the types of agree­ments?

For all of these types of struc­tures, agree­ments are nec­es­sary to ensure cer­tain­ty between par­ties. Agree­ments should be tai­lored to suit your indi­vid­ual busi­ness needs; how­ev­er, some typ­i­cal agree­ments include:

  • Share­hold­er agree­ment
  • Unit hold­er agree­ments
  • Part­ner­ship agree­ment
  • Joint ven­ture agree­ment

 

What is the pur­pose of hav­ing an agree­ment?

A legal frame­work will define in legal­ly enforce­able terms:

  • Everyone’s ownership/stake in the busi­ness
  • A frame­work for every­one to fol­low which out­lines the para­me­ters of their rights/obligations
  • What busi­ness deci­sions must be unan­i­mous or made by the pri­ma­ry own­er
  • The required cap­i­tal and lia­bil­i­ty con­tri­bu­tions from all involved
  • What income is retained for work­ing cap­i­tal
  • Dis­pute res­o­lu­tion mech­a­nisms
  • Insur­ance arrange­ments and many, many more.

 

What are the ben­e­fits?

Legal agree­ments will ben­e­fit your busi­ness by:

  • Cre­at­ing greater cer­tain­ty of indi­vid­ual respon­si­bil­i­ties with­in your busi­ness that every­one fol­lows
  • Reduc­ing the risk of lit­i­ga­tion as every­one has clear­ly defined rights and oblig­a­tions
  • Allow­ing you to reduce time and mon­ey spent towards resolv­ing dis­putes as there is a clear and secure legal frame­work ready to be fol­lowed
  • Allow­ing all par­ties to focus on the busi­ness oper­a­tions dur­ing dif­fi­cult deci­sion-mak­ing times.

 

Key Take­aways

  1. No mat­ter how close your rela­tion­ship is with the oth­er par­ties involved in your busi­ness, you must ensure you get both legal and tax advice on the struc­ture of the busi­ness and have a writ­ten agree­ment signed by all par­ties con­cerned.
  2. Avoid argu­ments over dif­fer­ing opin­ions about the oper­a­tion of the busi­ness by hav­ing a prop­er­ly pre­pared agree­ment in place that can resolve dis­putes effi­cient­ly and effec­tive­ly.
  3. Under­stand that it’s healthy to nego­ti­ate an oper­at­ing frame­work. If you already have a frame­work in place that requires updat­ing or if you are look­ing to put one in place, seek pro­fes­sion­al advice to work through this.

 

At Dono­van Oates Han­naford, it is impor­tant to us that our clients receive the best and most accu­rate infor­ma­tion for their indi­vid­ual cir­cum­stances which is clear­ly under­stood. If you would like to dis­cuss any ques­tions you may have, please con­tact Dono­van Oates Han­naford on 02 6583 0400 or info@dohlaw.com.au.

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