Shareholder Agreements, Partnership Agreements and Unitholder Agreements
What are shareholder agreements, partnership agreements and unit trust agreements? Find out below, courtesy of our Ascendia Lawyers, North Brisbane and Sunshine Coast.
Our Ascendia team regularly prepare companies, trusts, partnership agreements and shareholder arrangements for business clients across North Brisbane and the Sunshine Coast. The experience of our business solicitors ranges from simple arrangements through to large and complex arrangements as needed by the entity or client.
We recommend a close consideration of each client's personal and business circumstances and operation in the selection of entities and the resulting agreements to govern these entities.
Our Maroochydore law firm team are happy to provide legal advice and services in these areas. Contact Ascendia business lawyers on the Sunshine Coast to learn more about these legal services.
Shareholder, Partnership and Unitholder Agreements
Many standard company constitutions, unit trust constitutions and partnership arrangements used today are not sufficient for many normal commercial circumstances. Keep reading to find out why.
Standard Pty Ltd Company Agreements
Where there are 50:50 shareholders and 2 Directors, a standard company - without either a customised constitution or a shareholder agreement - is particularly vulnerable in the event of the Directors falling out.
In these circumstances the Directors are 'handcuffed' together. This means nothing can be done in the company since no one has control without the other, and no control can be taken by shareholders since they reflect the same interests.
In this situation the company often ends up in administration, and the shareholder can lose a lot of the value of the company assets.
There are many solutions if a Shareholder Agreement is used to tailor the company constitution and stakeholder management to the circumstances of the people involved. One solution is to have a shareholder agreement that is clear on what is to happen in a dispute, and/or who is to have control over what specific company decisions are made, so that the company is never left unable to act.
Common Law and Business Partnership Agreements
Business and common law partnerships can have similar problems - where all partners often have to agree on a course of action for it to be effected.
For example, all partners in a common law, or simple partnership, that own a property and/or a business will have to all agree to sell out of that property or business. So, even a person who contributed only 5% of the funds will be able to refuse to sell out and prevent the other 95% of the partners from selling. There are legal remedies to this through the courts, but a Partnership Agreement at the start of the partnership can be a much cheaper solution.
In addition, you can end up in a partnership without necessarily intending to. For example, if you conduct business with people and don't formalise the business arrangement in writing. This is because partnerships are often created at a common law level and seen to be created by the courts through people's conduct. Many people are not aware of what conduct demonstrates a common law partnership, and so are not necessarily always aware when they have entered into a partnership. Having arrangements advised on and documented can ensure that your conduct is consistent with the intended arrangement, and prevent you inadvertendly entering into a partnership.
Get a Partnership Agreement Documented to Safeguard Yourself
Whenever you agree to do anything in conjunction with another person or entity we recommend you get advice, and if necessary (if it is a partnership) get a partnership agreement documented. A Partnership Agreement will allow you to stipulate things up front - so you know what your exposure is - including who are the entities entering into the partnership.
Benefits of Partnership Agreements
A benefit of documenting the Partnership Agreement from the start is that misunderstandings and resulting arguments can be prevented by ensuring all partners are 'on the same page' with the proposition being agreed to.
Other benfits of a Partnership Agreement being documented are that if the partners can't agree on the major terms - they can stop there - and extricate themselves at the start, which is much simpler and cheaper than having funds locked into a venture where the parties are in dispute.
One can have a partnership of entities, including of trusts or companies, documenting a Partnership Agrement from the start of a business venture can assist with planning, budgeting and minimising (lawfully) the taxes payable on a venture, as well as assisting in the capital budgeting for the future investment capital required.
Finally, a Partnership Agreement confers identifiable legal right to business or venture equity, and this is able to be inherited through an estates process by your beneficiaries if planned and documented correctly.
Unit Trusts
These are similar to private companies in that they are majority rule by default, but the constitution creates different classes of units (as there are different classes of shares) that can complicate this.
Importantly, the trust pays no tax and all income and tax liabilities flow to the unit holder who is liable for these.
Given the fact these are not usually well understood entities our unit trust lawyers recommend getting legal trust advice before using one, and to consider using a Unit Holders Agreement to tailor the entity rules to your situation.
Overall Considerations
We recommend selection of entities and the resulting agreements to govern these entities be based closely on your specific circumstances and be researched and recommended in close cooperation with your tax accountants. We are able to assist with this at Ascendia Accountants, or alternatively in conjunction with your existing tax accountants.