Business Owner Agreements (ie. Shareholder Agreements, etc)

Your new Company or Trust will come with its rules of operation. In the case of a Company, it is referred to as the Constitution. In the case of the Trust, it is referred to as the Trust Deed.

In each case, the document will contain numerous rules about how the entity should function. This includes when meetings are required to be held, when and how income can be paid out, how to deal with changes in ownership, etc.

But these rules are designed primarily with flexibility in mind. They are designed to allow flexibility for tax purposes, and where ever possible to keep things relatively easy to manage for day to day matters.

However, they don’t go anywhere near far enough to deal with real situations that arise between multiple business owners.

Questions to ask include what if …

• A business partner
  • Isn’t pulling their weight
  • Just stops showing up to work
  • Wants out
  • Becomes ill
  • Becomes totally and permanently disabled
  • Dies
• There is a dispute between the partners
• A suitor wants to buy the business but not everyone wants to sell
• A suitor wants to buy only part of the business, but everyone wants to sell
• Plus there are many more

It is these types of scenarios that are addressed via a Business Owners Agreement.

Business Owners Agreements broadly come in three forms –

• Shareholders Agreements
• Unitholder Agreements
• Partnership Agreements

All can be thought of like a prenuptial agreement. Now that may not sound particularly sexy, but we can just about guarantee every person who has been part of a business relationship that ended under anything but totally amicable circumstances who didn’t have an agreement in place … wished they did! That way the mechanisms would have existed to deal with the situation in a fair, reasonable and most importantly less costly manner.