Shareholder and Partnership Agreements

By

I was recently asked to give advice to the client in relation to a partnership agreement that they had signed in their business. The agreement had been purchased online and my client had basically “filled in the blanks”.

My client is now a 50% owner in the business but because of the terms of the agreement that was signed, my client has no say at all in the management and operation of the business. This news was distressing for my client, especially given the business relationship is deteriorating.

This type of situation could easily have been avoided by the parties seeking advice and properly documenting an agreement that actually reflected the arrangement between the parties. A properly drafted agreement can serve to avoid unnecessary disputes arising throughout the term of a business relationship.

A shareholder or partnership agreement should address a number of issues, including:

  • The correct legal entity of each owner;
  • The principal of each owner, if the owner is a company or a trust;
  • The percentage of the business owned by each owner;
  • Whether any other agreements are contingent on the shareholder/partnership agreement (such as buy/sell agreements, employment agreements, loan agreements);
  • The capital to be injected by each owner into the business;
  • What happens if further capital is required;
  • The ownership of key assets in the business such as intellectual property etc;
  • Any prerequisites for being an owner of the business (such as a professional qualification);
  • If the business is a company, the minimum and maximum number of directors;
  • Representation on the board;
  • The percentage of ownership required for certain resolutions to be passed;
  • The role that each principal plays in the business;
  • Any restraint on the owner upon leaving the business;
  • Profit distribution policy;
  • How a party can exit the ownership of the business (i.e. do they have to first offer their share in the business to the other owners);
  • What happens upon the death, total and permanent disability or trauma of a principal;
  • Can an owner be expelled from the business;
  • How is the business valued upon the exit of an owner;
  • What happens if a dispute arises.

I also have found from experience that addressing these issues at the commencement a business relationship allows the parties to address some difficult topics before they commence the business relationship. I have had occasions where clients have decided not to go into business with another person as a result of negotiations for the shareholder agreement.

If you have any questions in relation to this important document please do not hesitate to contact me.

Tagged in: , , , , , ,


You may also be interested in:

6 Things You Can Expect When Declaring Bankruptcy

Declaring bankruptcy should be your last resort when you are faced with financial difficulties, whether as an individual or as a business owner. It is not exactly a “Get Out of Jail Free” card, as it comes with many adverse consequences, which may significantly impact your financial standing over a considerable period. So what consequences continue reading

How do you determine if a company is insolvent?

The answer to the question “How do you determine if a company is insolvent?” is important because there are serious consequences for a director if debts are incurred after the company has become insolvent, including civil penalties, compensation proceedings and criminal charges. However, it is often difficult to know when a company has crossed the continue reading

What to do if you receive an ATO Director Penalty Notice

Did you know that company directors may potentially become personally liable for unremitted Pay As You Go (PAYG) deductions and Superannuation Guarantee Charges (SGCs)? The Australian Taxation Office (ATO) has significant powers to recover a company’s unpaid liabilities personally through its directors and may issue a Director Penalty Notice (DPN). This article focuses on the continue reading

Liability Limited by a scheme approved under professional standards legislation | Website by VA