smiling casual business people enjoying doing business with each other

What is a Unitholders Agreement?

A Unitholders Agreement is a documented contract between the unitholders of a business and outlines their agreed behaviours and responsibilities to each other. (It helps you stay friends with the people you decide to go into business together with).

When would I need one?

When more than one-person enters a business relationship with another, they need to formally document their obligations and responsibilities to each other – this is equally important for Company and Unit Trust structures.

Unitholder Agreements are cost-effective and allow for;

What's the difference between a Shareholder’s Agreement and a Unit Holders Agreement?

Company structures are controlled in different ways to Unit Trust structures and therefore need different documents to serve different purposes.

Why would I need one?

People in business with others always need to document their rights, responsibilities and obligations agreed to, early in every business relationship. Being in business with another person (or persons) increases the known statistical risks of business interruption (not decreases) to manage.

  • Whether you’re in business using a general partnership, perhaps you have controlling shares in a company structure or maybe you hold ownership units in a Unit Trust that’s responsible for the day-to-day business, a Unitholders Agreement sets out the relationship between the Unitholders.
  • This ‘side agreement’, binds the Unitholders to a set of agreed-upon rules and outlines the rights and obligations to one another. For example, how disputes are managed, how the valuation of the ownership units are calculated, and what happens when a unitholder leaves the business in the future. Its dispute resolution clauses seek to manage conflict outside the courtroom and enable the parties to reach a cost-effective solution.

When to put a Unitholders Agreement in place?

Put a Unitholders Agreement in place when you first establish the Unit Trust. Doing this in the early stages of a professional relationship, before commercial stressors and personal circumstances change, or resentment builds between unitholders, will help to preemptively manage conflicts, expectations and disputes.

Good news: a Unitholders Agreement can be entered into at any time — as long as there is a unanimous agreement from all Unitholders to all the requirements and responsibilities listed in the agreement.

What's the difference between a Unit Trust Deed and a Unitholders Agreement?

A Unit Trust Deed and a Unitholders Agreement are different documents that serve different purposes.

  • The Unit Trust Deed creates a legal trust relationship. It sets out the rules of how the assets are held and what the Trustee must do.
  • A Unitholders Agreement manages the commercial relationships between the Unitholders and deals with issues not contained in the Trust Deed.

Both these key legal documents can be purchased through Sapience Financial.

What's in a Unitholders Agreement document?

A documented Unitholders Agreement is a written contract between the parties that clearly outlines roles, responsibilities, and how the business will be run between two or more people whose ownership in the business, is set by the number of units they each hold.

A Unitholders Agreement deals with:

  1. Dispute resolution procedures
  2. Regular valuation of the business and the units it holds
  3. The Buy-Sell Buy-Sell obligations of the Unitholders to each other
  4. The personal insurances needed to underwrite the Buy and Sell obligations
  5. The process to be followed for departing Unitholders and how they receive fair payment for their owned share of the units

Not having a Unitholders Agreement in place is high risk - and often an impediment to becoming a member of a larger commercial supply chain.

Insight: Unit Trusts are a common business and investment structure that can provide a simple way for parties to work together and or invest together, in business or property. In particular, investing via a unit trust is a popular way for many SMSFs to invest in real estate.

Case study – Allen, Bruce & Charles from ABC Engineering

Case study Unitholder Agreements, Allen Bruce and Charles form ABC Engineering Unit Trust

Allen co-owns a modern Heavy Excavator Tractor with two of his business partners Bruce and Charles - his mates from University - who all together established ABC Engineering.

  • He is unrelated to his business partners and only engages them in joint business ventures on major road construction and tunneling operations. 
  • The three of them come to an agreement - the Excavator is co-owned through a Unit Trust and rented out to large contractors as needed.

The value of the machine continues to fluctuate as demand and supply for its capacity changes as government contracts are completed or started. All three business partners are made Unitholders to the Trust, ABC Engineering Unit Trust.

Problem:  Their Unitholders Agreement is never signed between the business partners.

One day a dispute arises as to the valuation of the units that Allen and his partners own in the Unit Trust. The Unit Trust Deed does not contain procedures for;

  • valuing the units in a Unit Trust, nor
  • dispute resolution clauses.

Because Allen and his business partners did not sign a Unitholders Agreement, their only solution is using time-consuming and costly litigation, in an attempt to get past their decision deadlock.

How we can help

A Unitholders Agreement is an important part of protecting your business and your family, from the business.

  • We can supply this personalised legal document.

Contact us for a confidential chat about your needs.

Related: Key Legal Documents for Business Owners

What is a Family Loan Agreement document?

The most stressful conversations in family relationships usually involve questions about money — gifts, loans (and everything in between). A Family Loan Agreement is a legal document designed to protect everyone's interests, the giver and the receiver.

Simply put, a documented family loan agreement records the reasons and expectations for any sizable loan made between family members, and a legal method of retrieving the funds if something unexpected occurs in the future, that puts those funds at risk.

The main issue is not just getting a key legal document in place, but understanding your generosity and decisions can be 'gift wrapped in a protective legal wrapping', to keep everyone safe (and help adult children become financially independent).

Why documenting loans between family members keeps the peace

A Family Loan Agreement protects your generosity and decisions made today, against the unexpected risks of tomorrow. Transferring money to family members through gifts or other means has the potential for good (and not-so-good outcomes later).

  • Whether these are sizable deposits for a first home, perhaps a payment to clear tertiary education debts, payment for weddings or assisting frail age parents with financing an Aged Care Accommodation Bonds - can all be legally documented to protect your good intentions, plans, and generosity, so later, if others do not remember the reason for your generosity and decisions, they can be clear.

While many of us would prefer not to face the complications of real-world money complications and changes in relationships, nothing says genuine like putting it in writing.

Pro Tip: Read our Case Study – Alma and what happened when she 'gifted' a deposit for her grandson's new home, and partner

Who is a Family Loan Agreement for?

Used for Singles and Families alike, a documented Family Loan Agreement has a number if very important advantages. More a precaution, not a plan, a family loan agreement, is a way of thinking clearly about uncertain futures and managing resources so that the best possible outcome has the best possible chance.

Family loan agreements are designed to cover all types of loans between family members. Whether that's documenting a loan to;

  • an adult child,
  • between step-family members in blending families,
  • siblings in relationships with uncertain futures,
  • family members in business and high litigation occupations like medical and engineering,
  • or maybe a loan to mum or dad for aged care costs, or perhaps just siblings loaning each other substantial amounts like a deposit o a home or a business loan — all these decisions can be made better when you consider how to prepare for lifes possible and unexpected risks

Family Loan agreements provide a stable and predictable 'wrapping' around a good intention.

What do family Loan Agreements protect against?

The 5 main risks that everyone faces in an unknown future are:

  1. Relationship breakdown is a real-life risk and financial risk.
  2. Bankruptcy is happening more.
  3. Addictions - gambling, drugs, and high-risk speculative spending and investing, happen.
  4. Medical risks, mental health, and accidents affect relationships.
  5. Litigation and Personal Injury Lawyers who like to chase easy targets, middle-aged folk with assets.

Documenting Loans Made to Family members

Whether that's helping out mum and dad financially or lending money to a sibling experiencing a relationship breakdown (as possibly facing a family law court financial settlement in the future), lending money for a home deposit – documenting your clear intentions now ahead of time will lessen the chance of misunderstanding or lapsing memories later.

Good hearts and bad ideas

There are some things most people seem to immediately understand and recognise as a bad idea:

  • Giving a large amount of money to someone experiencing an addiction to gambling or drugs - is not a good idea.
  • Giving a young child unrestrained access to a cash inheritance immediately - is not a good idea.
  • Helping a friend with money with no consideration if there is an underlying and ongoing problem - is not a good idea.
  • Receiving a large inheritance while they’re part way through a divorce proceeding in the Family Court and still dividing financial assets - is not a good idea.

Protecting your good intentions and document your reasons

Tomorrow is hard to see, (and often darn right impossible) in the current circumstances - so how do we create good habits that support our good behaviours and best intentions?

We can help you build a legally drafted and documented Family Loan Agreement through our secure customer portal.

How we can help

Family Loan Agreements are an important part of protecting your money provided to others from unseen future risks.

  • We can supply this legal document.

Contact us for a confidential chat about your needs.

Related: Key Legal Documents for Business Owners

What is a Company Power of Attorney?

A Company Power of Attorney is a legal document put in place by a company to appoint a person, (or persons, or even another company), to act on its behalf if the director loses mental capacity (eg: through sickness or an injury, such as a stroke or a head injury) or dies.

An Australian company has legal capacity and the same rights as a natural person. Its Directors function as the mind of the company and make decisions on its behalf and is said to act through its Directors where Company Directors sign documents and make decisions for the company.

  • The Company Power of Attorney (CPOA) provides continuity of company affairs and good stewardship. This is especially important if the directors are sick, missing or otherwise unable to act. The company loses its ability to act without a functioning director and is then a ship without a rudder.
  • This is particularly important requirement for Sole Directors of a company who may not yet have a Will in place to transfer controlling shares in the business. 

In contrast, a human Power of Attorney (POA) (enduring or medical) only appoints humans to act on behalf of another human.

Important: The role of Company Director is one that cannot be gifted to another or transferred through a Will nor can it be exercised under a personal Power of Attorney document.

When to establish a Company Power of Attorney?

  • Do you own and operate a business under a company structure?
  • Are you the sole director and shareholder of your Pty Ltd. trading or operating company?
  • Are you the sole director and shareholder of a company that acts as a Corporate Trustee for a Trust or a Self-Managed Super Fund (SMSF)?

You need a company power of attorney

Under the Corporations Act, a company is allowed to appoint an attorney and it is not necessary to have a specific power in the Company constitution to do so.

When does its need arise?

Depending on your company constitution, a director’s role is usually automatically vacated on a director’s incapacity or death. In these situations, you need to have someone ready and capable of taking control of the company immediately.

  • A Director is the decision maker of a company and this role cannot be inherited, gifted, or addressed under a personal Power of Attorney.
  • If you're the sole director and shareholder of a private company, you must have a backup plan in place if you lose the mental capacity to continue to make decisions (or even die)

Failing to have a documented plan for this eventuality will leave your company, its financial value, and your family vulnerable.

The Difference between Personal Estate Planning & Business Estate Planning

Personal Modern Estate Planning is about putting legal documents in place today where you nominate ahead of time, a person to act on your behalf later, if you cannot make decisions, due to an unexpected sickness, illness or absence. Business Modern Estate Planning is about building a business continuation plan if the business owner cannot make decisions, due to an unexpected sickness, illness or absence.

Modern Estate Planning for Business is business structure specific so the type of business structure in place determines whether personal estate planning documents or company estate planning documents is needed to build the business continuation plan.

  • Sole Traders and Partners are usually seen as one-and-the-same with the business structure. This means their personal control of the business can usually be exercised by others if needed through the use of a Power of Attorney or a Power of Enduring Guardianship document.
  • Company Directors are seen as separate-and-distinct from the business ownershipThis means the power of a company Directorship cannot  be exercised by others or transferred or 'gifted' by a Will, a personal Power of Attorney or Power of Guardianship document.

All these documents are available to be built and purchased through our Sapience Secure Customer Portal with the assistance of your financial adviser.

This is not something you can continue to put off

It can cause real distress and financial hardship to your family if you are the sole shareholder a director of your company and there is no one authorised to direct or manage your business if you lose legal capacity or die.

  • While things are being sorted out, the saleable value of your asset may decrease, contracts lost, and competitors are given time and opportunity to take advantage.
  • Make sure you have the necessary legal documents in place, so you can maintain your competitive advantage at a time of uncertainty.

Failure to plan for this eventuality can affect the financial viability of your assets and leave your family vulnerable – so, it is something you need to turn your mind to today.

Pro Tip: If a company director dies, does the Company Power of Attorney stop working? No. It does not. A Company Power of Attorney is given by the company, and not by the director. Directors come and go, move on and even pass away. Unlike a personal Power of Attorney, the movement of company directors has no bearing on a Corporate Power of Attorney that continues until revoked.

How we can help

A Company Power of Attorney is an important part of protecting your business and your family, from the business. If you're the sole director and shareholder of a private company, you should have a backup plan in place if you lose the mental capacity to continue to make decisions (or even die)?

  • We can supply this legal document.

Contact us for a confidential chat about your needs.

Related: Key Legal Documents for Business Owners

two business partners working

What happens if my business partner suddenly buys a Porsche with company money and then disappears with the partnership's chequebook? (or Why you need a documented Partnership Agreement)

General Partnerships have Unlimited Liabilities

When people make the decision to go into business together, one important yet often overlooked consideration is how best to establish and document the legal relationship between them.

While one of the key benefits of a general business partnership is that it allows the Partners to pool their respective skills and resources (skilled labour, financial resources, business relationships, equipment, etc.) they also need to address how to manage the risks of unlimited personal liability, for the other partners' actions.

Read more …

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