Documenting Business Relationships.

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The Article

Business Lawyers on the Sunshine Coast and Brisbane

documenting a business relationship_sunshine coast lawyers

Business Sale & Purchase

Each business is different, and preparing or negotiating a business sale contract for any business is a very important process. 

There are many considerations to be taken into account and much will depend on the specific industry the business trades in, and the nature of the business itself.

However, there are a number of key issues common to all business sales, and the key terms should include:

  • How the deal is to be structured: sale of business; sale of assets; or sale of shares.
  • Payment terms.
  • Identifying the asset and transfer requirements.
  • Including the intellectual property, and how it is to be transferred.
  • Documenting, and identifying all the essential operational needs:
    • Licences.
    • Leases.
    • Permits and Approvals required.
    • Key Personnel. 
  • Dealing with Risk (warranties, indemnities, limitation of liability).
  • Restraint of Trade on the seller.
  • Identify the Employee liabilities and transfers arrangements.
  • Default of the agreement and dispute resolution.

Just as important as the legal side of the transaction is the financial side.  Having the advice of a good accountant is invaluable.  

Joint Venture Agreements

Many situations could benefit from having a relationship between 2 (or more) otherwise entirely separate parties, come together for their mutual benefit. 

They can be as simple as “You provide the money and I’ll provide the skills” to as complicated as multiple party, multiple discipline, multiple funder arrangements. 

Best intentions of joint ventures can go awry when parties to a joint venture have not documented their arrangements accurately or comprehensively. 

And it is often the most simple disagreement that can unravel an otherwise complex arrangement. 

Key considerations in drafting joint venture agreements, include:

  • Determining the structure, form and content of arrangement.
  • Documenting objectives and intentions.
  • Relevant conditions precedent.
  • Drafting terms for setting out each parties:
    • Contributions (financial or otherwise).
    • Equity and other benefits.
    • Valuations and commercialisation.
    • Confidentiality and disclosure.
    • Roles, responsibilities and liabilities.
    • Ownership of assets including intellectual property rights.
    • Dispute resolution.
    • Termination and exit strategies.

Joint Ventures are often limited in their lifecycle, and might relate to a single project or a series of separate projects that can follow the same structure and process, such as:

  • Joint research and development projects.
  • Creating a new product.
  • Providing a new service.
  • Expanding markets into other areas, locations.

The joint venture is its own entity, separate from the participants other business interests.

Preliminary Agreements

You must start somewhere, and often much of the initial business dealings are informal and ad hoc.

However, just because things are verbal doesn’t mean you haven’t reached agreement.  A verbal agreement is as legally binding as a written agreement (its just harder to prove).

Often the first document you’ll need, is a Non-Disclosure Agreement, or a Confidentiality Agreement

They will ensure the parties can now talk openly, without fear of being taken advantage of, or the information you discuss being used to your disadvantage. 

If you don’t have the time to get a proper confidentiality agreement in place, we have a simple online Non-Disclosure Agreement (NDA) that can be completed online, to get you going, and talking. 

Next up, you might want to start thinking about a Memorandum of Understanding

An MOU is generally (but not always) a non-binding agreement between the parties that seeks to document what their intentions are as it relates to them, and the business deal. 

It would typically record the common intentions, goals, purposes and future dealings being contemplated. 

Some can be very detailed and others, much more high level, and illustrative.

MOU’s are often drawn up by the parties themselves, in their own words, and go on to form the nature of the legally-binding agreement drawn up by the lawyers later.

Heads of Agreement are, in essence, the same as an MOU (neither titles have any legal meaning as such). 

We see the phrase being used mostly as a sort of ‘stepping stone’ moving between an MOU and a formal (full-form) legal document or agreement. 

More often, if lawyers are involved, we will use a Heads of Agreement to set out the essential terms being contemplated between the parties, which is being negotiated. 

It should remain non-binding however, and clear language should be used to keep it so.  

Once again, a HOA go on to form the nature of the legally-binding agreement to be drawn up. 

 

Shareholders Agreement

Starting a new business with others is likely to invoice a new company (or multiples) or a new Trust structure.

Check out our page on business structuring for more information on that. 

Shareholders Agreements (and Unitholders Agreements) are drafted at the start of a new business relationship.

Often, hopes and energy are high, and everyone is on their best behaviour, full of friendship and trust.

But what happens when things go wrong or the parties want to end the relationship, or fall into dispute?

Often, the smallest things unravel business relationships. 

You need to look realistically at the arrangement and have a Shareholders Agreement that is not just suited to your relationship, now, with business as usual, but also for when things don’t go to plan.

That will require a robust and workable shareholders agreement, that includes:

  • Knowing what the parties are trying to achieve – their goals and aspirations.
  • Discovering the most optimum ownership structure and corporations law requirements.
  • Ensuring an understanding of shareholder activity outside the new venture is reached.
  • Including appropriate limitations or restraints on shareholders (and their associates). 
  • Properly managing the capital contributions, the obligations, repayments, and returns.
  • Managing the benefits to each shareholder, including if they can contract with the company.
  • Dealing with director appointments.
  • Dealing with voting rights between shareholders.
  • Including decision-making processes that balances good governance with operational requirements.
  • Effective, practical and reasonable dispute resolution mechanisms.
  • Exit strategies, including drag-along and tag-along rights.

Whilst being often overlooked as just a standard off-the-shelf document, a well-drafted Shareholders Agreement can ensure that the business will not suffer in the event of things going wrong in the future. 

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DISCLAIMER: The content on this page was written at a specific point in time in the past and is provided as general guidance only.  It is not intended to be specific legal advice to any person’s particular circumstances who may be reading it.  We do not recommend you use this article as a replacement for obtaining proper legal advice on your issue and encourage anyone reading this content to obtain legal advice to ensure the above information and guidance remains valid and suits your particular circumstance.  In our experience, there is no ‘one size fits all’ to any legal issue!

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