Each potential business structure has its attractions. Having made your decision, ensure that you will derive maximum benefit from your choice of structure with clear and concise business documentation.
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A shareholders agreement – while by no means compulsory – clarifies the expectations of members that is lacking in company constitutions.
It provides a transparent framework for everything from share transfers; to entry and exit from the company; to confidentiality; and to dispute resolution.
Having a well-drafted shareholder agreement is a shareholder safety measure and can engender confidence in the company and its enterprise because:-
- Every person involved in the business understands where they stand, what they are entitled to, and how they should interact with the organisation and other shareholders;
- Disputes can be resolved quickly and be prevented from happening in the first place;
- The clarity of purpose that the agreement provides allows the company to move toward its strategic objectives with fewer distractions.
We’ve put together some basics for an effective shareholder agreement so you know what elements should be included, but it’s important to have the agreement drafted and/or reviewed by a specialist business lawyer to ensure it accounts for all of the potential scenarios that may be encountered.
Common inclusions in a shareholder agreement
If someone offers to buy the company and 4/5 shareholders want to accept the offer, what happens? Many shareholder agreements include what is called a ‘drag-along clause’, which can allow for a majority to compel a minority to sell their shares to a purchaser.
Restraint of Trade Provisions
These clauses limit the activities of shareholders to prevent them from acting in a way that damage the interests of the company.
Dispute resolution procedures
There are very few businesses that never experience any sort of dispute among shareholders. Protect the company by ensuring there is a clear, fair process when issues are raised.
What happens if a shareholder passes away, or sells their shares? Having clear guidelines for situations like this ensure the company doesn’t miss a beat.
Business partnerships are often formed on shared aspirations and goals of a successful joint venture. However, it is not uncommon for business partnerships to dissolve over bitter arguments about assets, profits and decisions.
A partnership agreement is a binding contract between the individuals joining together for the goal of business profit.
Like a shareholder agreement, it will clearly outline the terms as between the partners in the operation of the business.
A partnership agreement will generally include the following:
- How the profit, losses and shares of the business will be divided;
- The amount of money and assets each partner will invest into the business;
- The potential of new partners joining the partnership;
- The potential of partnership dissolution;
- The different roles and responsibilities of each partner;
- How to resolve any disputes and misunderstandings that may arise between partners.
For those who do not wish to incorporate, a comprehensive partnership agreement can help avoid misunderstandings among partners as to the operation of the business. It is an essential foundation that ensures that the interests of the partners are aligned and aids in the effective running of the enterprise.
Unit Holder Agreements
The holders of units in a Unit Trust can be individuals, companies or discretionary trusts.
The Unit Trust will be constituted by a trust deed which is “settled” by a trustee. Most commonly the trustee of a Unit Trust engaged in a business activity will be a company. The Unit Trust Deed is the equivalent of a company constitution.
As in the case of a company, the relationship, entitlements and duties of Unit Holders is better recorded in a Unit Holder Agreement (like a Shareholder Agreement) than in the Unit Trust deed itself.
That said, many of the features of a Shareholder Agreement can be imported without change into a Unit Holder Agreement, including those relating to management decisions, transfer of units, pre-emption in the event of death or TPD etc.
Your Expert Business Lawyers
These are just a few of the most common elements to consider when drafting a shareholder agreement, partnership agreement or unit holder agreement. If you partner with Qld Business & Property Lawyers, you’ll work alongside an expert commercial lawyer who will take the time to understand your business as well as relevant threats and opportunities that may require consideration in the documentation.
For businesses in Brisbane and throughout Queensland who are looking for an experienced firm to handle their shareholder agreements, partnership agreements or unitholder agreements, the search ends here. Get in touch with the specialist team at QBPL today to begin the process of drafting your agreement.