Dispute

Bringing on business partners?

For businesses that are growing and putting on other shareholders and directors, a Shareholders Agreement is a must have. If your business is not a company but it a partnership or a unit trust structure, the document would be a Partnership Deed or Unitholders Agreement.

Don’t leave some of the most important and fundamental issues for your business to chance. Consider a company with 2 or 3 shareholders – a typical small to medium sized business scenario…

COMMON PROBLEMS FOR SHAREHOLDERS

Issues that commonly that can affect shareholders include:

  • A shareholder sells their shares, leaving you with an unintended business partner;
  • A shareholder dies and you inherit an unintended business partner or you have to buy the shares from their estate for more than you ought to;
  • As a shareholder, you want out but cannot find a suitable purchaser but the other shareholders won’t buy you out;
  • The shareholders don’t have available funds to pay out an exiting shareholder;
  • The majority shareholder wishes to run the business one way, but is restricted by a minority shareholder;
  • You, as a minority shareholder, are being treated poorly by other shareholders who are running the business with little regard to your interests;
  • You wish to sell the company’s business as there is an excellent offer on the table, but another shareholder will not and is jeopardizing the sale;
  • You wish to receive dividends from the business, but others want to reinvest the profits.

The aim of a Shareholder Agreement is to bring some certainty to the business relationship so there is confidence in how the business will operate

TAILORED SOLUTIONS

A Shareholder Agreement tailors the rights and obligations of the shareholders to fit the particular purposes of the company, the nature of its business and the aims and wishes of its shareholders – to help avoid some of the potential problems identified above.

Some factors that should be considered in a Shareholders Agreement include:

  • The company’s activities/type of business – its purpose;
  • The roles and obligations of the shareholders;
  • Who are the directors and how the shareholders can change them;
  • Director remuneration;
  • Who will manage and control the business day to day, such as a managing director;
  • Meetings – how they are called, how they are run, counting of votes;
  • How decisions are made by shareholders or the board of directors;
  • What types of decisions require a simple majority, special resolution or a unanimous vote;
  • Payment of dividends;
  • Funding/borrowing;
  • Restrictions on the issue/transfer of shares and calculating the share price;
  • How shareholders can exit from the company and on what terms;
  • Funding of exits (including death) – buy/sell obligations and personal insurances;
  • Restraints on existing shareholders as to company customers etc;
  • Insurances to be taken out; and
  • How any disputes are to be resolved.

The aim of a Shareholders Agreement is to bring some certainty to the business relationship so that shareholders can have some confidence as to how the company will be run and, if there is a falling out, to provide a mechanism for that falling out to be dealt with, as painlessly as possible.

Ideally, the Shareholders Agreement would be in place from the outset whilst all parties are in agreement in relation to all issues however, they can be documented at any time (provided all parties agree).

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to starting or buying a business, drafting business documents or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your business needs.

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The importance of workplace policies

All employers need to maintain, develop and implement appropriate workplace policies in their business.

The need for these policies is not only compliance with relevant legislation, but also to protect the businesses against claims which might arise from inappropriate conduct of employees. Creating and enforcing workplace policies is one way in which employers may be able to effectively prevent or manage such claims.

Putting in place suitable policies can be a time-consuming task and one that is potentially dangerous for those who are not familiar with the legislative and contractual requirements involved.

The purpose of workplace policies is to place both the employer and employees (or prospective employees) on notice of certain things such as prohibited conduct. They often prevent any serious problems arising but if problems do arise, the employer is usually able to prove they upheld their legal duty by showing compliance with an established written policy.

We can tailor policies to meet the requirements of your particular business.

The following is a non-exhaustive list of topics that employers may wish to cover with appropriate policies:

  • Equal employment opportunity
  • Discrimination, harassment, bullying and violence
  • Work health and safety
  • Appropriate email and internet use
  • Workplace surveillance
  • Drug and alcohol use
  • Mobile telephone use
  • Dress codes
  • Annual leave and sick leave
  • Dispute resolution
  • Counselling and disciplinary procedures
  • Privacy
  • Redundancy

The workplace policies should be drafted so that they compliment the employment contracts in place.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to workplace policies, business law or employment related matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

 

The importance of proper Terms of Trade for your business

DOES YOUR BUSINESS EVEN HAVE ANY TERMS OF TRADE? IF SO, ARE THEY ADEQUATE (AND UP TO DATE)?

We all sell goods and services, but do we ever really stop and think about what it takes to have a valid contract? There are 4 essentials at law, namely:

  1.  Offer – what is being sold
  2. Consideration – the price
  3. Intention to legal consequences – this is presumed at law
  4. Acceptance – agreement to purchase

Even buying a bottle of water for $1 is entering into a contract. We know what is on offer, we know the cost, we know that once we pay the price, ownership changes hands and it is accepted by paying the price.

Certain things cannot be sold without a written and signed contract in a very specific format that contains certain prescribed documents and words – such as a contract for the sale of land. Most things however don’t need that sort of detailed documentation to form a legally effective and binding contract

Most T&Cs are terribly inadequate. Often they are just copied and pasted from other documents and not tailored, leaving businesses thinking they are adequately protected when they really are not.

Most businesses that have Terms of Trade have terribly inadequate ones and often, the terms don’t form part of the deal at all as they are notified too late – for example where they are printed on the back of a receipt after the deal is concluded. The Terms need to be agreed before the deal is done.

WHAT SHOULD BE IN YOUR TERMS OF TRADE?

Here is a some of the things that should at least be considered for Terms:

  • Parties names and details – Use proper names (a business name is not a legal entity). Who is the buyer/seller?
  • Quotes/estimates – Is it fixed price or based on hourly rates or quantities?
  • How is the offer accepted – Payment, signature, purchase order, ticking a box to acknowledge the terms and then clicking ‘submit’ for online businesses
  • Exclusivity – Is there any obligation not to deal with or sell to others?
  • Term – Is there a fixed term for the arrangement or is it ongoing?
  • Renewal – How can it be renewed and for what term?
  • Obligations – What other obligations (if any) do the parties have to each other?
  • Title – When does ownership to the goods actually pass?
  • Risk – Who is responsible for the goods whilst in transit?
  • Insurance – Who is to take it out? For what amount? To cover what risks?
  • Payment – How much? When is it due? How is it to be paid?
  • Interest – What is the consequence for paying late? What about liquidated damages?
  • Security – What security (if any) is provided to secure late/non-payment? Charge, Mortgage, PPSR Security Interest? Is a director to guarantee a company’s obligations?
  • Termination – On what basis? On what notice?
  • Notices – How are they given and what period of notice is required?
  • Obligations on termination – Return of goods, payment in full of all amounts due etc
  • Limitation of liability – To what extent is it limited? What liability can’t be excluded?
  • Releases and indemnities – What things may be covered by a release and what events is one party entirely responsible for?
  • Privacy – How is private information to be dealt with? Can you use their details to market other goods to them?
  • Warranties – What promises have been made about the product?
  • Entire agreement – is this agreement intended to cover the field regarding the parties’ dealings? Or are there numerous contracts that operate on other terms?
  • Force majeure – What happens if the parties can’t comply through no fault of their own, like a strike, accident or inclement weather?
  • Dispute resolution – What do the parties need to do to resolve a dispute? Mediate? Get an expert? Can they go to court without doing this?
  • Jurisdiction and governing law – which law applies and which court will hear any dispute? Really important for online trading!
  • Delegation – Can a party delegate their role to a third party? How? Do they need approval?
  • Assignment – Can a party assign the benefit of the contract to someone else?
  • Confidentiality – Are the terms of the deal to be kept secret? Are staff also to be restrained?
  • Intellectual property – Who owns the IP? How is it to be used/returned?

If you buy, hire, sell or on-sell goods or services, whether through a shopfront or on-line (or you have a client that does so), please consider whether they actually even have any Terms and Conditions of Trade or if they do, whether they are adequate.

If they do have T&Cs, it may be that they simply copied and pasted various parts from other documents and websites they had seen. This can often lead to them mistakenly thinking they are adequately protected when they actually are not.

They may need to be updated to reflect recent changes in the law such as the Australian Consumer Law and the Personal Property Securities Act (or if they refer to legislation that doesn’t even exist anymore! (Such as the old Corporations Law and the Trade Practices Act).

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to starting or buying a business, drafting business documents or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

Do you have a Shareholders Agreement?

CONSIDER THESE COMMON ISSUES

What would happen to your company if you or your business partner became so ill that one of you could no longer work – or worse still, died?

Would you still be paying dividends or making distributions of profit to that person even through he or she is not around, or to their spouse or family?

If they died and left their spouse everything in their Will (including their shares in your company), would you want to be in business with his or her spouse?

What if your business partner sold his or her shares in your company to a complete stranger or a competitor following an argument?

How are your shares to be valued and over what period will the purchase payments be made to your family? Or is there an insurance policy to fund the payment in a lump sum?

HOW CAN A SHAREHOLDERS AGREEMENT HELP?

A Shareholders Agreement can cover these not uncommon scenarios and tailor the rights and obligations of the shareholders of a company to fit your personal circumstances and your particular business to help avoid some of these potential problems for everyone’s ultimate benefit.

You may have a Will, but you may not have certainty in relation to what will happen to your family or your business in the event of your death or serious illness unless these matters are clearly dealt with in a Shareholders Agreement.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to business succession, estate planning, litigation and dispute resolution or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au