Having a well drafted shareholder, unitholder or partnership agreement for your company, unit trust or business partnership helps govern the relationship between parties whilst in business together and when the business relationship comes to an end. It sets the framework for decision-making within the business and the process for a business partner to exit the business (which can be voluntarily or involuntarily). It can minimise the potential for dispute, as well as reduce the costs and uncertainty for the parties.
If you are thinking about entering into (or are already involved in) a business, we strongly recommend that you enter into a written shareholder, unitholder or partnership agreement. This should be prepared towards the start of your business relationship but it can also be done later in the business lifecycle. The agreement should be reviewed every 2-3 years to ensure that the terms remain suitable for the circumstances of the business and the parties, particularly if the business has undergone a period of growth.
Your shareholder or unitholder agreement should include terms about:
- The shareholders or unitholders rights to appoint directors to the company;
- The types of decisions that can be made by directors and whether those decisions must be made unanimously, by majority vote or individually;
- The types of decisions that can be made by shareholders or unitholders and whether those decisions must be made unanimously or by majority vote;
- Paying capital into the company or providing a shareholder loan;
- The process for selling and purchasing shares in the company or units in the trust, including how the shares or units may be valued;
- Restrictions on transferring shares or units to third parties;
- The transfer of shares or units on the death of a shareholder, unitholder or a key person of a corporate shareholder/unitholder;
- Non-compete and non-solicitation restraints applicable to the company directors and/or shareholders/unitholders;
- Confidentiality obligations; and
- Dispute resolution procedures.
Your partnership agreement should include terms about:
- How the profits and losses from the business will be shared;
- The role and responsibilities of each partner;
- Daily management issues for the business, such as payment for expenses, accounting records, insurance and employment matters;
- Admitting new partners into the partnership;
- Removing partners from the partnership;
- Whether assets brought in by each person are individual assets or assets of the partnership;
- How a partner may exit the partnership; and
- Dispute resolution procedures.
At WMD Law, we have a team of solicitors with extensive expertise in commercial and business law. If you would like assistance with preparing or obtaining advice about a shareholders, unitholders or partnership agreement, please contact Dean Groundwater, Anika Fleet or Matthew Coulter or call our team on 9525 8688. We also invite you to download our free Essential Business eGuide.
