All too often, we see disputes arising between company shareholders, business or joint venture partners including as to making business decisions, drawings, profit, retirement, partners being absent from the business or failing to achieve goals.
To minimise disputes arising and to outline each party’s rights and obligations, it is prudent for a written agreement which documents and defines these rights and obligations and other matters as set out hereunder.
In the context of:-
- Two or more individuals intending to form a partnership, the written agreement is a partnership agreement that conforms with the Partnership Act 1891 (Qld);
- A limited liability (i.e. Pty Ltd) company, the written agreement is a shareholders and directors agreement between the company directors and shareholders and is a shareholders agreement that conforms with the company constitution and/or the Corporations Act 2001 (Cth), including the replaceable rules under that Act; and
- A joint venture, the written agreement is between all of the joint venture partners and is known as a joint venture agreement.
Irrespective of the underlying structure, these written agreements are a critical and overarching contract which provides procedures for dealing with common matters and concerns. In the context of a company, a shareholders agreement supplements (without replacing) a company’s constitution by providing greater detail regarding the company’s corporate governance and will typically prevail to the extent of any inconsistency with same.
Many start-up and existing businesses do not appreciate the importance of putting in place a tailored agreement that deal with critical business matters and this can be detrimental in the future, particularly where the business has significant growth or disputes between partners, shareholders, directors or joint venturers arise.
These written agreements can cater for a wide variety of business matters, including (without limitation):
- Distribution of profit and dividend policies;
- Decision making procedures;
- Transfer of a partner’s, shareholders or joint venturer’s due to a sale or where such a person becomes incapacitated or passes away;
- Appointment and removal of managers, officeholders or key personnel or other employees, contractors or staff;
- Requirement for a business plan;
- How disputes should be resolved;
- Restraints of Trade (both during the business or after leaving it);
- Dispute Resolution Procedures;
- Termination events;
- Option rights to existing shareholders, partners or joint venturers on default or in certain events; and/or
- Confidentiality and Non-Disparagement obligations.
Such agreements can be entered into at any time – at establishment, any time during operations or when a new partner, investor, shareholder or joint venturer wishes to acquire an interest in the business.
They are highly tailored documents and are typically only prepared by an experienced commercial lawyer to suit the particular business entity, its members and personnel and operations.
Where you may be investing in a business (new or existing) through the purchase of an interest, you may be presented with a proposed partnership agreement, joint venture agreement or shareholder agreement. Do not assume these are standard documents and sign without firstly obtaining proper legal and other expert (eg financial, accounting, taxation) advice.
These agreements are heavily tailored and can be highly favourable towards major interest holders or business owners. They may allow a party with more capital at their disposal to dictate affairs or control voting power or business direction. The importance of obtaining proper legal advice prior to execution cannot be overstated.
For advice on any such agreements presented to you or for the preparation of shareholder agreements, partnership agreements, joint venture agreements or similar agreements, please contact our business and commercial law department on 5526 0157.