A partnership allows two or more people or entities to come together to operate a business. They share the profits, but also the responsibilities and the risks. As a general rule, partnerships are limited to between 2 and 20 partners.
There are many advantages to the partnership business structure. Unlike a sole trader, there is more than one person to share ideas and expertise, and to contribute resources to establish the business. There is more privacy in terms of the reporting requirements, the set-up costs are relatively low, and there are tax advantages. For example, partners can put their partnership income into their own personal income tax return, instead of the business being taxed.
However there is the potential for disputes, as more than one person must agree on management decisions. Also, there is unlimited liability in a partnership. This means that if one partner does something that gets the business into hot water, all of the partners are personally liable. So a partnership requires an element of trust.
While the Partnership Act sets out the rules for partnerships, it is important to also have a partnership agreement in place. This establishes some clear guidelines, in writing, for how the business will run, and what will happen in the event of certain situations.
Among other things, the agreement should include:
- The name and address of the business and its purpose
- The names and addresses of partners
- The duties and responsibilities of each partner
- The process for making decisions
- The amount of money (capital) each partner will contribute
- Bank accounts and accounting details
- The names of consultants, such as a lawyer and accountant
- Details about how profits and losses will be shared
- Details about the payment of salaries / income to partners
- What happens if one partner dies, retires, or goes bankrupt
- What happens when one partner wants to change or transfer their interest in the partnership
- Dispute resolution processes
- Procedures for adding new partners
- How to dissolve the partnership, including valuing and distributing assets
Our lawyers can draft a partnership agreement for you, ensuring that no important details are missed. We understand the intricacies of the partnership structure, and can advise you about whether this structure best meets your business’ needs and long-term goals.
A shareholder is someone who owns one or more shares of stock in a company. They get to benefit from the company’s earnings and assets, but they also share liability if the company owes money or goes bankrupt.
While the Corporations Act does not require companies to have a Shareholder agreement, having one can be extremely beneficial for setting some ground rules about issues that affect shareholders. It is particularly advisable for proprietary (private) companies to have a Shareholder agreement, as their shareholders generally have more influence over the company than public company shareholders do, so issues and disputes are more common.
Sometimes compared to a ‘pre-nuptial agreement’, a Shareholder agreement serves to protect the shareholder, and make the company’s processes clear. A good Shareholder agreement will address every possible eventuality. These issues may include, but are not limited to:
- The share split, and the types of shares
- The rights of shareholders in relation to the type/percentage of shares they own
- The division of dividends (taking salary payments into account)
- The voting rights of shareholders (depending on type/percentage of shares owned)
- Actions that require the consent of shareholders
- What happens when voting is deadlocked
- The process for appointing directors, and their role
- Whether shareholders can also be company employees
- How new shares are allocated
- The valuation of shares
- The process when a shareholder wishes to sell their shares
- The process for transferring shares, (eg. when a shareholder dies)
- The liability of shareholders when the company is in debt
- The mediation process to resolve disputes
There is a great deal to consider. Getting legal advice is crucial for companies establishing a Shareholder agreement, and for potential shareholders who need assistance deciphering one.
Our lawyers can help companies create an effective shareholder agreement that addresses all possible eventualities, and makes the role of shareholders clear. We can assist shareholders to understand their obligations before entering into a business arrangement, and help to mediate any disputes that may arise.