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Partnership and Company Contracts and Resources In Australia

When you're starting out in business, you have lots of decisions to make. One of these decisions is choosing the best business structure for your enterprise. The business structure provides the legal framework for how your business will operate and and there are several choices depending on whether you intend to go it alone or operate it with others.

Common business structures include:

  • Sole trader – is essentially a one-man band who trades as the person legally responsible for all decisions for the business. The sole trader is also responsible for all debts incurred by the business and he or she enjoys all the profits.
  • Partnership – a business partnership is formed when two or more people carry on a business together with a view to making a profit.
  • Company - is a separate legal entity independent of its owners (shareholders)
  • Trust – is a structure that holds property or income for the benefit of its beneficiaries. The trust is controlled by the trustee who has a duty to act in the best interests of the beneficiaries at all times.

4 choices business structure

Learn: Starting a Business with multiple owners - issues to consider

What is a Partnership?

Many people find themselves in an actual business partnership without even knowing it. Under Australian tax law you can be deemed to be partners simply by the conduct of the parties towards one another (TR 94/8).

If you have joined forces with another entity (individual or a company) to run a business with the intention of making a profit together, then you are likely in a business partnership.

Business partners are generally liable for the obligations created by each other in the context of doing business. Meaning each partner has the authority to bind the partnership to legal arrangements and incur debts on behalf of the partnership, placing the personal assets of the partners at risk.

Learn: About Business Partnerships in Australia

Whenever you enter business with someone else it is critical to have a set of rule that guide the decision making process in your business relationship. So if you want some control over your rights and how the partnership may impact your personal financial situation, then it’s a wise move to have a partnership agreement in place.

What should a partnership agreement contain?

A Partnership Agreement is a written contract that provides the framework for the relationship. It spells out the obligations and expectations of the relationship, and reduces the potential for confusion and disputes. It should cover:-:

  • The equity split of the partnership, ie, how much does each partner own?;
  • How will the profits (or the losses) be allocated?;
  • Management of the Partnership and record keeping;
  • What acts would require Majority consent;
  • Duty to keep certain information confidential;
  • What will happen if one partner wants to sell their interest?;
  • What should happen upon the death of a partner?; and
  • many other unforeseen situations.

Partnership Agreement Template

partnership agreement template kitThis agreement defines rights, roles and responsibilities of each partner, clearly spelling out specific conditions that apply to the partnership.

The document is provided as an easy to edit Word document.

 

 

Does a partnership have shares?

Partners don’t own shares as such, like shareholders in a company. Generally speaking, the partners of a business own a proportion of the business, which should be set out in the partnership agreement.

How do you determine the ownership percentage of the partnership?

If there is no partnership agreement setting out ownership rights, the proportion of ownership may be inferred by the previous actions of the Partners or by reference to the Partnership Act that applies in your state or territory. 

Can you be a director of a partnership?

Partnerships don’t have directors. However, your partnership agreement may appoint one or more people to make certain decisions on behalf of the other partners. This is similar to the structure of a company where the directors run the company but the shareholders own the company.

How do you end a partnership?

The partnership agreement provides guidelines to help dissolve a partnership.

For instance, the agreement may have a certain term or run for a specific period. Once the term expires the partnership is over. The partnership may also dissolve upon a trigger event such as a specific project reaching completion or one of the partners becoming bankrupt.

Where an agreement is open-ended or does not exist, one partner can simply give the other written notice of his or her intention to dissolve the partnership.

State legislation will ultimately determine the terms and conditions of how a partnership may be dissolved.

Partnership Dissolution Agreement Template

Partnership dissolution agreementIf you have run into trouble with your partner or the business has ceased to trade, then a Partnership Dissolution agreement will set out how the business assets or net liabilities will be divided between the partners.

You use this Agreement when you wish to formalise the ending of a business partnership.

What is a Company?

A company is a separate and independent legal entity from the people who own the company.

Company separate legal entity

The owners of the company are known as its shareholders and every company must have at least one shareholder. The company officers (known as directors and company secretaries) are the ones who manage the day to day business operations of the company.

A company has the same rights as a natural person whereby it can borrow money, incur debt or even sue or be sued.

Because of its separate legal status, the liability of the shareholders can be limited to their investment in the company, which means under most circumstances, the personal assets of the shareholders are quarantined from claim by creditors of the company.

Just like an individual, a company must lodge an annual tax return with the ATO and be registered for GST if its annual turn over exceeds $75k.

A popular choice for small business owners is the proprietary limited company, identified by 'Pty Ltd' after the name. A Pty Ltd Company does not trade or sell its shares on the Australian Stock Exchange and has limited liability.

Unlike partnerships, there are a standard set of rules for running a company called a Company Constitution which is regulated by the Corporations Act 2001. You can choose to abide by the standard Company Constitution or you can develop your own set of fuels (which still must comply with the law).

What is meant by a company constitution?

The Company Constitution is a document that governs the internal management of the company and the company’s relationship with its officers and shareholders.

When registering an Australian company the Australian Securities and Investment Commission (ASIC) will ask you to choose between a custom set of rules (your own company constitution) or the replaceable rules which are set out in the Corporations Act 2001.

If you wish to change the rules, adopt your own constitution or a combination of the two after registration, the company must pass a special resolution.

If your company has a single shareholder who is also the director, then there is no need to adopt either a constitution or the replaceable rules.

Do you need a Shareholder Agreement if you already have a Company Constitution?

Typically the company constitution or the replaceable rules will deal with issues such as:

  • issuing different types of shares (if applicable);
  • removal and appointment of the company directors;
  • duties of the directors and what powers those directors should have ; and
  • how to address conflicts of interest between directors.

On the other hand, a shareholders agreement is a supplement to the company's constitution. It regulates shareholder rights, responsibilities and liabilities to other shareholders, but most importantly, it deals with numerous issues not addressed in the company’s constitution.

shareholders agreement definition

What should a shareholders agreement include?

It up to you and your fellow shareholders. You determine the issues that need to be addressed in the shareholder's agreement and these depend on the nature of the business you are running, the objective you set for the company and the number of shareholders involved.
Below are some of the issues to be considered:

  • The objectives of the shareholders in establishing the company;
  • Contribution to capital funding and loans to the company;
  • Budgets and cash flow;
  • How and when dividends should be paid to shareholders;
  • Meetings and voting rights;
  • Issues that may arise if a major shareholder wants to sell their interest;
  • The process to be followed should a shareholder or their estate wish sell shares in the event of retirement, death or disability;
  • Incoming shareholder responsibilities;
  • Matters requiring board meeting approval;
  • Key personnel and key activities of the Directors;
  • Guarantees and indemnities on behalf of the company;
  • Advances to shareholders;
  • Dispute resolution procedures;
  • Restraint of trade for directors and/or shareholders;
  • Confidentiality agreements; and
  • Exit strategies

Learn: Six vital issues to consider when preparing your shareholder agreement

Shareholders Agreement Template

Shaeholders Agreement Template CoverA shareholders agreement is a supplement to the company's constitution which regulates shareholders rights and the management and operation policy of the company.

Learn: When does a Company need a Shareholders Agreement?

Learn: Why Every Business Big or Small Should Take Advantage of a Shareholder Agreement

What is a Shareholder Buy sell agreement?

Used in conjunction with an insurance policy, the Shareholders Buy/Sell Agreement is like an estate plan for a company.
If a shareholder or other key person dies, the insurance policy kicks in to provide money to enable the other shareholders to buy out the deceased’s owners’ share in the business.

Likewise, provision is made in the event that an integral person is totally or permanently disabled.

Learn: How a Shareholder Buy Sell Agreement safeguards your companies future

Learn: What would you do if your business partner died?

Shareholder Buy Sell Agreement Template

Shareholder Agreement Buy Sell Agreement TemplateBuy-sell Agreements provide private companies and partnerships with the mechanisms to allow a nominated purchaser to buyout the interests of a partner or shareholder, on the occurrence of a 'trigger event' such death or disablement.

These agreements are often looked on as a type of "Will" for a company or partnership. They allow interested persons to set out how the interests of partners or shareholders will be dealt in the event of their death or disablement.

Deed of Accession Template

Deed of Accession TemplateThis deed of accession issued in connection with a shareholders agreement whereby a new shareholder agrees to be bound by the terms and conditions of the shareholders agreement to which the existing shareholders are a party.

What is a Joint Venture or JV?

A Joint Venture is a strategic alliance between two or more individuals or entities to engage in a specific project or undertaking. It is different to a partnership because partnerships generally entail a continuing, long-term business relationship.

The joint venture structure is not a legal entity. Revenues, expenses and asset ownership usually flow through the joint venture to the participants and when the JV goals are complete the JV ceases to exist.

Learn: What are the advantages and disadvantages of a Joint Venture?

What should a Joint Venture agreement include?

A written Joint Venture Agreement should cover:

  • The parties;
  • The objectives;
  • Financial and or other contributions;
  • How will Intellectual property be handled;
  • Day to day management of finances, responsibilities and processes to be followed;
  • Dispute resolution, how any disagreements between the parties will be resolved; and
  • Termination of the JV.

Consider using confidentiality or non-disclosure agreements between the parties when starting discussion about the JV, this helps to protect sensitive commercial secrets or confidential information. 

Joint Venture Agreement Template

Joint Venture Agreement Cover This agreement provides the framework for two individuals or organisations to record in writing the details of an arrangement to work together on a specific project, normally for a short term, while remaining separate entities.