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Welcome to Business Uncut. My name is Ana, the Practice Manager at New Wave.
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I’m joined today with Jameson Smith, Commercial Lawyer from MBA, and Callum Farrugia, Client Manager at New Wave.
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Today we are delving deep into shareholders agreements, selling and buying into businesses,
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restructuring, and we’ll also touch base on some of our frequently asked questions from business owners.
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So Jameson, first thing clients always ask, I have a company constitution, why would I need a shareholders agreement?
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Can you touch base on what a shareholders agreement is, how it differs from the constitution,
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and benefits from a legal standpoint?
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Jameson Smith Yeah, for sure.
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So the number one thing we always say to any client, especially when they’re going to go into
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a business with a mate, or a silent partner, or whatever the case may be, is if there’s going
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to be more than one person, always get a shareholders agreement.
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Relying on the constitution of the company is tough.
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So the constitution doesn’t go into too much depth with respect to dividend policy, drag-along, tag-along rights.
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These are just all things that our shareholders agreement will cover.
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If you don’t have a shareholders agreement, you need to rely on the replaceable rules, and that’s under the Corporations Act.
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So they deal with internal governance for your company, and for the shareholders in there, as
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well as some directorship, voting, and things like that.
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What I would highly recommend is, obviously, the shareholders agreement, because those will
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include things like buy-sell insurance policies.
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So where a shareholder suffers a permanent disability, or an occurrence of death, what happens
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with their shares, having those insurance policies in place to be able to pay them out.
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So it’s a seamless transition.
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You’ve got tag-along and drag-along rights, which is your ability for minor shareholders to
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stop sales, and your majority shareholders to force sales.
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So there’s a lot of other provisions in a shareholders agreement that aren’t touched on under
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the constitution or replaceable rules.
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So your best bet is to always come speak with a lawyer.
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If it’s me, that’s awesome.
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And then, you know, we can kind of go through those different clauses, and things we would recommend in those scenarios.
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Okay, and is this something that you have to do from the start, or can you adopt a shareholders
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agreement years into the business?
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You can adopt it any time you want.
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It just makes it a lot harder in the future.
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I would always recommend doing it straight away.
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If you do it into the future, your shareholding might have changed.
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There’s a number of things that can differ from when you first started, you know, that needs
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to be dealt with straight away.
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And honestly, the number one thing we see most is, you know, when one partner influxes more
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cash into the business than the other.
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And, you know, how that’s dealt with is a little bit harder without a shareholders agreement.
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So do it straight away.
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Best advice I can give someone.
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And can you amend shareholders agreements down the track if the business has changed?
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Yeah, you can amend it anytime.
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But you’ll have to pass a resolution as decided in that shareholders agreement.
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So normally, it’ll be a decision, but a lot tougher to amend it down the track if, you know, things change again.
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So again, the idea is come see a lawyer, come see an accountant, kind of do some pre-planning
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where you think the business will be in five years, 10 years.
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How can we deal with that under a shareholders agreement?
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Much better than nip it in the bud now than deal with it later.
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And who pays you for this?
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The company will technically pay us.
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So we will act on behalf of the company.
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And the shareholders can, I think we’ll touch on this soon, but can go out and see their own
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independent lawyers to get legal advice on what the shareholders agreement means for them.
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But the company will pay us for our service.
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So you look after the rights of the interests of the company? Yeah, correct.
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Which in turn is the shareholders, but it’s a grey area.
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And we always just, you know, say, hey, look, we’re instructed by the company, which is obviously
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you guys, but, you know, you actually do need to go out and get your own legal advice about,
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you know, what the shareholders, what the shareholders agreement means for you and everything like that. Perfect.
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And how long does this whole process usually take?
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Let’s say from the day that I give you a call? Yeah, it can vary.
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We’ve had some shareholders agreement take, you know, 48 hours.
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We have some take six months.
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We’ve had clients spend quite a bit of money, a substantial amount of money, especially more
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in, you know, group holding scenarios.
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So where company A own shares in company B, C and D, how those rights work, especially when,
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you know, potentially company B has employees that they want to bring up to a shareholding level. Yeah, it can vary.
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But ideally, you know, it’s we’re a service based industry.
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So we do things very quickly.
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So six months would be because there’s a lot of back and forth, not because you’re out playing golf. Yeah, correct.
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I don’t play golf, I’m chained to the desk. Perfect.
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Okay, so the shareholders agreements, if anyone’s ever read it, the language can be quite confusing.
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So let’s touch on some questions that clients would ask.
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What does first right of refusal and preemptive rights actually mean?
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Yeah, so your first right of refusal is a shareholder right.
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So when you are a shareholder, no matter if that’s a 20%, or a 50%, or an 80% shareholder, you’ll
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have what is a first right of refusal to purchase the shares of a selling shareholder.
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So if partner A and partner B, and it will say actually partner A, B and C, you know, they each
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have 33% holding, whatever that might be.
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If partner C wants to sell and leave, A and B will have the first right to buy those shares
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in their respective proportions that they hold.
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Again, this is dealt with under a shareholders agreement.
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If you leave it up to the Corporations Act and the replaceable rules, you can find yourself in some barney.
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But it’s, yeah, look, the idea is it makes it as fair as possible for all shareholders.
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If someone wants to exit, that’s fine.
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There shouldn’t be any animosity towards that.
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It should just be sweet, we’ll take your shares in the first instance.
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But if that preemptive right isn’t actually utilised by by another shareholder, so A and B,
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then C can go out and actually sell their shares to the third party.
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So, but that third party usually needs to be approved by other shareholders before they enter into the business. Perfect.
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And what is the difference between a shareholders agreement versus a share sale contract and also an employment agreement?
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And can they all be tied into?
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Yeah, so your shareholders agreement is completely separate.
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So that’s your internal governance document is what we like to call it is basically when you
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start a business with, especially with a couple of people, you’ll have your shareholders agreement,
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which is your, you know, your, the way that you interact as shareholders, pretty much.
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And it also deals with director resolutions.
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So, you know, what rights shareholders have to appoint a director and everything like that.
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So your share sale agreement is deals with a share sale.
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So when someone wants to exit the company, or someone wants to sell to a third party, a share sale agreement is prepared.
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And that has far different terms to a shareholders agreement.
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So it’s just basically a different scenario.
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And then obviously your employment agreement is your employment with the company.
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And again, that’s a different scenario, depending on what industry the business is in. Okay, perfect.
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And what are some little examples that you have found that people have put in shareholders agreement
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that’s out of the ordinary, out of the ordinary, for example, where would I put that I don’t
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want anyone to buy a car in the business?
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What if some shareholders decide they want to buy Range Rovers and others don’t agree with that?
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Is that something you can put in the shareholders agreement?
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You can be as detailed as you’d like.
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You know, company expenses, what we like to see, whether you call a Range Rover an asset of the business or not.
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I think they go down pretty quick.
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But the way the shareholders agreement can be drafted is that, for any asset purchase over $5,000
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or $50,000 or $100,000 needs to be approved by shareholder resolution of say 75%.
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And then obviously they can’t just go out and buy a Range Rover without getting the approval of everyone else.
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So you can get protective that way.
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And then obviously touching on the employment side, you can actually tie employment to shareholding,
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which is a funky one that we actually see becoming more of a norm now, where you’ve got two
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partners or three partners in a business that are doing a startup.
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You’ve got partner A, B and C and partner A and B are really in there doing all the work.
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Partner C is just kind of chilling and he goes, I’m not going to get employed in this business anymore.
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I just want to go surf and play golf.
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Tying his employment to the business and his interest in the business is key for shareholding.
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Otherwise you’ve got two guys funding another guy to go play golf and surf.
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So having an event of default occur then, which gives the right of those other shareholders
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to buy that guy out basically.
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I actually have an example of exactly that.
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We had a business, there was three shareholders in the business.
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They were all working 40 hours.
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And that was their kind of commitment, no shareholders agreement in place obviously.
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Had a falling out and one of the guys just said, look, I’ve lost my passion for this.
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I don’t want to do it anymore.
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But the other two shareholders didn’t want to buy him out because the amount of money that he
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wanted was obviously quite large.
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He designed as a director, stopped working in the business, but it was always a 20% shareholder
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who just sat on the sidelines just saving his clip of a dividend every three months.
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So that actually went on for about two to three years, ultimately caused the company to wind
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up just purely due to disputes and stuff like that.
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So that definitely highlights the importance of having a shareholder agreement in place. 100%.
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It’s the most important document, I think, personally, you can get if you’re starting a venture with anyone.
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And when you say he wanted a large amount of money, how did he come to that valuation?
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Can you just decide how much money you want for shares or do you actually have to get a valuation done by an accountant?
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No, that’s exactly what he did.
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I think he bought his 20 or 30%, I remember it was probably around 20 or 30 grand, and he wanted 500,000.
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Just because of what he thought the business could do and the time and effort he’s put in and
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he wouldn’t want to sell for anything less.
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That’s usually the most common feedback we’ll get from a client.
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When we ask them, have you come to this valuation?
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They’ll usually say, I wouldn’t sell for anything less.
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It’s like, well, how did you?
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Is there any methodology behind it or anything like that?
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And it’s usually just emotions and everything else from the blood, sweat and tears they put
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into the business, which is understandable, but then it puts the other shareholders in a pretty tough spot.
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They don’t think that it is what it’s worth.
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So yeah, it can be hard.
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Because that’s something else you can add into a shareholder agreement, right, is how the business is actually valued. Yeah, 100%. Share sale. Yeah, exactly.
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Yeah, so you can put valuation, we always will put a valuation clause in there that will deal with that exact scenario.
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So how shares are valued on a share sale, how shares are valued on a share issue. Yeah, absolutely.
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We see people put family law events as an event to default.
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So if someone’s, unfortunately we’re seeing it more and more often these days, if someone’s
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subject to a family law event being a de facto separation or a divorce or whatever that looks
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like, it’s actually an event to default on behalf of that shareholder, which means you’ve got
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party A and B and now have the right to purchase party C out of his shares.
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The idea behind that is you’ve got party C in a divorce and his partner may end up with the
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shares in this business as part of that property split.
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And then all of a sudden you’re working with someone that has no idea about the business, has
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never had an interest in the business, potentially has been on the to happen.
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So we have that event to default clause in there and that’ll assist with protecting honestly all of them.
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So yeah, that you can add in as well.
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And if you’re maybe boyfriend, girlfriend, you’re about to get married and you don’t have a
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shareholder’s agreement, is this something you can put in the prenuptial agreements or would
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you still recommend having a shareholder’s agreement regardless of your…
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Yeah, prenup agreements are not my direct area of expertise, but look, you can divide if you
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have started a business with a partner or something like that and you’re about to get married,
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you can absolutely put what percentage of that business each person actually contributed in that prenup for sure. Okay, perfect.
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And Callum, just a follow-up question.
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What if a shareholder wants to bring in an employee as a business owner?
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Can they sell their shares at a really discounted price?
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They can, but it can result in a tax event for the person who’s selling the shares at a discounted price.
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So whenever you’re doing any transaction, the agent generally wants that transaction to occur
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at what’s called market rates.
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So if you’re providing a discount, what could happen is the market rate substitution rule will
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kick in and the shareholder who sold the shares will still have to pay tax on what’s considered
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the market rate, not the discounted rate.
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So then the actual person selling the shares, trying to do a nice thing, give it to them as
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a discount, ends up still paying tax on the normal rate.
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So something definitely to take into consideration before just doing that.
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And with that as well, you’ve got things in the shareholder’s agreements that’s called good
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lever and bad lever provisions.
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So if a shareholder was to exit as a good lever, they get paid their 100% value of the shares.
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If they exit at a bad lever because something bad’s happened, then they have to sell their shares
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at a discounted rate to their shareholders.
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We normally see that sitting around 80%.
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You can actually run into some trouble if you discount it too much and get ASIC penalties for
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penalising a shareholder and things like that for dropping it down too much.
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So it’s a tough area and I’m sure it would cause a headache.
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And for business owners listening that are thinking about bringing employees on into the business,
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can you put clawback clauses into the shareholder’s agreement if they were to leave within a certain timeframe? Yeah, absolutely.
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We see it all the time.
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We’ve got a new venture for a client at the moment where he’s introducing two employees as 15%
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shareholders and those shares actually vest over a period of five years.
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So each year they’ll get a certain proportion.
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So yeah, absolutely, we see it all the time.
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And if they leave, again, that’s why you tie that shareholding to the employment so that if
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they leave, the company can buy it back or other shareholders can buy it back.
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Yeah, so it’s pretty important. Okay.
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And what is your experience with clients going to court over shareholders’ agreements and what have been some outcomes? Yeah.
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Look, we do pretty much everything except criminal and MBA and litigation’s not my indirect
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specialty, but the idea is I have to have a decent knowledge to try and prevent this happening.
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But yeah, look, we see it all the time.
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And honestly, it’s more so when shareholders’ agreements aren’t drafted.
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Not having a shareholder’s agreement can basically just cause an absolute mess because you’ve
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got to rely on the Corporations Act and the replaceable rules and some common law precincts and things like that.
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And a lot of the time, we have a client that purchased a property in Mermo Beach with three
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other unit holders and those unit holders, they’re living the dream, the property’s gone up,
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our guy wants to cash out, no one want to buy him out.
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And just to confirm, a unit holding agreement is pretty much the same thing as a shareholding agreement.
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So again, just the relationship between parties that are involved in that venture.
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So they didn’t get a unit holders’ agreement in place, so they have to rely on the unit trustee
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and that didn’t actually give him too much of an out.
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So that’s still ongoing at the moment and costing everyone money. Good for us.
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No, but honestly, the money it costs to get that shareholder’s agreement in place, get that
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unit holder agreement in place straight away will save you so much money down the track.
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Or the idea is that it does.
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So in terms of the shareholder’s agreement, if one person breaches the shareholder’s agreement
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first, but then someone else breaches the shareholder agreement after, is it just whoever’s
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breached it first or whoever?
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Yeah, well, I mean, look, there’s still two breaches, so you have to treat them as they are.
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So normally, again, the idea for a shareholder’s agreement is you draft it to rely on down the track.
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You don’t necessarily draft it because you’re going to follow it by the book every day.
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But yeah, if you’ve got someone that breaches first and you’ve got another guy that breaches
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after, you still got to deal with that the same as you would give them a chance to kind of remedy
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that breach if it’s possible.
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And then if it’s not, then you can deal with those eventual defaults and things like that there.
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But, you know, again, those preemptive rights and things like that will kick in for those defaults.
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Okay, Callum, some accounting questions.
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Can you be a shareholder and an employee at the same time?
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What would be the benefits? Yeah, you definitely can. It’s quite common.
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So if you’re operating a company and it’s your business, you’ll commonly be the shareholder.
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To take money out of that company as the owner, normally you would do that as either a wage or a dividend.
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So, you know, if it is a wage, then you’ll technically be an employee of the company.
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In terms of superannuation, there’ll be PRJ withholding on the wage. So yeah, very common.
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And yeah, the benefit really is that you can actually take the money out in a different way versus just a dividend. Okay.
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And then in terms of dividends, who decides when these get paid out?
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How often can you do it?
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How does it work from a tax point?
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So in terms of who decides, it’s ultimately the director.
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In terms of how regularly you do it, when you do it and the like, it’s really going to be dependent
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on, well, how much money we’ve got in the company.
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Important thing to note is dividends are paid from what’s called retained earnings, not your current year profits.
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So, you know, it’s a company profit that it makes during the year, pays its tax, then the remaining
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cash at bank is your retained earnings.
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So that’s what you actually pay your dividends from, not what you make during the year.
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So, you know, you can’t pay the dividends if you don’t have any profits from the prior year.
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Also, we have to be mindful of franking credits.
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So franking credits is the tax that the company does pay on those prior year profits.
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If you take a dividend out and there’s no franking credits, it means you’re going to have no
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tax attached to the money you’re taking out.
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So it’s generally more favourable to pay a dividend when there is, you know, those tax credits
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there because when the owner takes that money out, it means they’re going to get a tax relief
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because they’re going to be able to claim back some of the money that the company’s already paid.
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So, yeah, we have to be really mindful of what is the franking account balance, making sure
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that it doesn’t go into a deficit at the end of the year.
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If it does, you may then be liable to pay a franking deficit tax, which isn’t pretty as well.
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So, yeah, it really comes down to a lot of things to be mindful of.
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In terms of regularity, monthly or more frequently than that can be quite hard to manage in
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terms of, you know, looking at your franking account balance, you know, how much retained earnings
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you’ve got left, what your current year profits are, any tax payments during the current year.
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So more commonly, we’ll see either quarterly or bi-annually or annually.
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Annually is generally the easiest because, you know, you’ve got your prior earnings, your tax and paid dividend afterwards.
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So, you know, you’ve kind of mitigated a lot of the variables, but sometimes people want to take more money out.
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So, yeah, like I said, the more kind of common payment methods would be, you know, quarterly or bi-annually.
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Okay, can you just dumb down franking credits for me a little bit more?
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So what you’re saying is the company pays tax on the profits and then when I get the money as
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a shareholder, I don’t have to pay any tax on that money?
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Yeah, let me give you a really easy scenario to hit the nail on the head.
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So let’s say we’ve got a company, it’s made $100,000 of profit before tax, right?
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Company tax rate is 25%.
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So we’ve got $100,000 of cash in the bank from the profit.
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Company has to pay that $25,000, i.e. the 25% to the ATO.
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After the year is done, there’s going to be $75,000 left in the bank account. $100,000 less than $25,000.
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Owner goes, cool, I’ve got money in the company bank account, I want to take that out.
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I’m going to declare a dividend.
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So we do a dividend of $75,000 remaining cash in the company bank account.
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That then is income to the shareholder.
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Because that $75,000 was originally $100,000, they get to claim back the $25,000 that that company has already paid.
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Otherwise, if they were paying their tax rates on the $75,000, that income has been double taxed.
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Originally $100,000, now it’s $75,000.
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The shareholder gets to claim back the tax that the company has already paid.
20:43 – 20:47
They have to recall that as income, which is sometimes quite a misconception.
20:47 – 20:52
They actually record $100,000 of income in their own name.
20:52 – 20:55
Then they pay their marginal tax rates on that $100,000.
20:55 – 20:58
Let’s say their marginal tax rates are 34.5%.
20:58 – 21:03
They would then be paying $34,500 on that original $100,000.
21:03 – 21:07
But they get to claim back the $25,000 that the company has already paid.
21:07 – 21:11
They’ll just pay the difference between the $34,500 and the $25,000, which is $9,500.
21:12 – 21:15
Ultimately, that income is only being taxed once.
21:15 – 21:17
Because we’ve got $100,000 taxed at the company level.
21:17 – 21:18
Then it goes to the shareholder.
21:18 – 21:21
They recall that income in its previous state.
21:21 – 21:26
They pay what we call their top-up tax, or their marginal tax rate.
21:26 – 21:28
But then they get to claim back the $75,000.
21:28 – 21:32
To hit the nail on the head, you’d have your original $100,000.
21:32 – 21:33
The company pays the $25,000.
21:33 – 21:38
The shareholder then records that $75,000 plus the frank credits as income in their name.
21:38 – 21:40
They don’t pay the full $34,500.
21:40 – 21:42
They just pay the difference, which would be $9,500.
21:42 – 21:44
And that’s why you get an account, everyone.
21:49 – 21:56
Unfortunately, Australian tax law isn’t very friendly in terms of trying to interpret it easily. Yeah, I can imagine.
21:56 – 22:01
In the case of, let’s say one shareholder is in absolute growth mode.
22:01 – 22:03
And they just want to reinvest all of the profits.
22:03 – 22:06
And another person has just gone out and bought a Lamborghini and really needs some money.
22:07 – 22:12
That’s dealt with in the shareholder’s agreement in terms of the dividend payout. Yeah, correct.
22:12 – 22:13
Just at a board level.
22:13 – 22:14
And I was going to touch on this as well.
22:15 – 22:17
Dividend policies are where you’re starting a new venture.
22:18 – 22:22
They should, from my personal belief, should be a back-end thought.
22:22 – 22:24
It shouldn’t really be a thought to start.
22:24 – 22:27
Obviously, you need to make sure you’ve still got some expenses to live.
22:28 – 22:32
But yeah, if you’re in a growth mindset and you need to grow, your money should be reinvested into the business.
22:32 – 22:35
And we’ve drafted dividend policies around that.
22:35 – 22:39
But again, it depends what those business partners want to do.
22:40 – 22:43
But yeah, ultimately, it should be, hey, let’s reinvest, let’s grow this thing.
22:44 – 22:46
And that’s kind of where you should sit where you’ve got a new venture.
22:47 – 22:52
After a couple of years, then probably worth thinking about, hey, let’s actually put together
22:52 – 22:54
a more frequent, you’ve got better cash flow.
22:55 – 23:00
You know, what your monthly, and honestly, I agree with Cal, is quarterly dividends probably make more sense.
23:01 – 23:05
But yeah, at that point, you can start thinking a little bit more into it. Okay, perfect.
23:06 – 23:09
Okay, so Calum, can a shareholder be a trust or another company?
23:09 – 23:13
Do you usually recommend an entity to be the shareholder or just an individual?
23:14 – 23:17
Yeah, no, definitely can be either a trust or a company.
23:18 – 23:20
A lot of things have to be really mindful of here.
23:20 – 23:24
When we’re looking at who should be the shareholder, we want to obviously look at asset protection
23:24 – 23:26
as well as tax minimization.
23:26 – 23:31
So if we’ve got a trust with a company acting as the trustee or a company, what that will mean
23:31 – 23:36
is those shares are held in a separate legal entity, which will give those shares more protection
23:36 – 23:42
if it was, I guess, the alternative was for those shares to be held in the director’s personal name.
23:42 – 23:46
So that’s one thing that, you know, you get a benefit of holding it under either a trust or a company.
23:47 – 23:50
Holding it under a company is generally not something that we would recommend.
23:50 – 23:54
And the reason for that is companies aren’t eligible for what’s called the 50% CGT discount.
23:55 – 23:58
So if you’re a shareholder, you know, you buy into a business and you hold those shares in a
23:58 – 24:03
company, you hold those shares for longer than 12 months and you grow the business, you know, quite well.
24:03 – 24:08
If you then want to sell your shares, you’re not going to be eligible for that 50% CGT discount,
24:08 – 24:10
which may mean that you pay more tax.
24:11 – 24:12
Trusts are eligible for that.
24:12 – 24:15
So we’ll generally lean toward these shares being held in a trust.
24:16 – 24:18
Our trust work is they don’t actually pay tax.
24:19 – 24:24
Whatever income is made in a trust, whether it’s dividend or capital income from when you do
24:24 – 24:26
sell the shares, gets distributed down to beneficiaries.
24:26 – 24:31
So it gives us a lot more flexibility because if it’s a family trust, we can obviously look
24:31 – 24:32
at the low tax environments.
24:34 – 24:39
So whether it’s, you know, other family members or it could be spouse or whoever it may be that
24:39 – 24:43
has lower tax rates, we actually then try and distribute some of that income to those lower
24:43 – 24:47
tax environments, ultimately bringing down the effective tax rates for the whole family group.
24:48 – 24:54
So trust is usually the route that we’ll lean toward, but in some instances, yeah, a company can still be favourable.
24:54 – 24:59
And if I set up a company now and I just put myself as an individual shareholder and a year
24:59 – 25:05
down the track, I decide I want to move the shares into a trust, does the trust, do I have to pay tax?
25:06 – 25:09
Do I have to pay CGT tax on the transfer of shares to my other entity?
25:09 – 25:13
Yeah, so that’s a very common situation and, you know, when you’re setting up a business, it
25:13 – 25:20
often comes down to looking at the costs and setting up a trust with a company can be not as
25:20 – 25:22
appetising because it does cost more.
25:22 – 25:27
So, yeah, very common scenario, we’ll have a company, individual shareholder, they’ll want to
25:27 – 25:32
start, you know, flowing dividends to maybe their spouse or to, you know, parents who are working,
25:32 – 25:33
they’ve got a lot of tax rates or something like that.
25:34 – 25:37
So they’ll go, hey, look, I don’t want to keep receiving these dividends in my name, can I give
25:37 – 25:39
them to my spouse or someone else?
25:40 – 25:43
We’ll then go, yeah, you can do that if you do have a trust as a shareholder.
25:43 – 25:48
And then the million dollar question is, well, how do I, you know, move the shares from me personally to the trust?
25:48 – 25:53
A lot of the time I think they can, you know, just gift the shares over or, you know, just transfer the shares.
25:54 – 25:58
But unfortunately, like I said, you know, before, all these transactions have to be done at
25:58 – 26:00
market rates and that’s what the ATO wants.
26:00 – 26:05
So we have to do a valuation on the business to see what it’s worth to then transfer those shares at that market rate.
26:05 – 26:11
If the business has, you know, grown and it’s doing quite well and it’s now profitable, it’s
26:11 – 26:15
going to be quite likely that the value of that business has increased, which then may mean
26:15 – 26:18
that individual shareholder has to pay tax on the transfer.
26:18 – 26:24
So there are some capital gains tax concessions that the shareholder can rely on to reduce that
26:24 – 26:28
down and potentially make it nil if they, you know, put it to super or a few other things.
26:28 – 26:33
But it’s definitely something we want to look at early on and that’s why we generally will always
26:33 – 26:37
advise to try and get your structure right in the first place because it can save you a lot
26:37 – 26:40
of money down the line with things like, you know, transferring the shares over. Of course.
26:41 – 26:47
So if I am running a business through a discretionary trust or just under a personal AVN, can
26:47 – 26:49
I bring on additional business owners? No.
26:50 – 26:52
So trusts don’t have definable interests.
26:52 – 26:56
So you don’t have, you know, shares or units in the trust like Jameson’s mentioned before.
26:56 – 27:01
So if you’re operating a business in a discretionary trust, you can’t, you know, give someone a portion of that.
27:02 – 27:05
The trust either holds assets or operates a business on behalf of the beneficiaries.
27:06 – 27:11
There’s no definable interest as to what beneficiary owns what.
27:11 – 27:16
So really important, again, to speak to your accountant or even a lawyer in this case to see
27:16 – 27:20
what is the best structure for you from that, you know, kind of practical sense because if you
27:20 – 27:24
do have the intention of trying to bring someone in down the line, you want to make sure that
27:24 – 27:25
you’ve got the right structure to facilitate that.
27:25 – 27:27
That goes the same for an AVN.
27:28 – 27:29
As a personal AVN, you are the business.
27:29 – 27:32
You know, you can’t cut off an arm and give someone 10% of your business.
27:32 – 27:34
It’s essentially you are that business.
27:34 – 27:36
So it can be really hard in situations like that.
27:36 – 27:40
The only way you can really kind of look at it is if they are working in the business, you can
27:40 – 27:44
pay them as an employee, but you can’t actually give them equity in it. Okay.
27:44 – 27:49
And something we’ve seen from nasty splits of shareholders is share diluting.
27:50 – 27:54
Do you guys want to talk about what that is and how it can affect an existing shareholder? Yeah.
27:54 – 28:00
So just from like a really high-level kind of accounting perspective, share diluting is essentially
28:00 – 28:05
when shares are issued to reduce the shareholding percentage of the existing shareholder.
28:06 – 28:11
So let’s say there’s two partners in the business that each own 50 shares each.
28:11 – 28:16
So the total shareholding in the company is 150, you know, plus two, 50, sorry, times two.
28:16 – 28:23
If we then want to bring in another shareholder, as opposed to selling the shares, if that company
28:23 – 28:30
then issues another 50 shares to shareholder C, that will then mean that all shareholders own 33.33% each.
28:30 – 28:36
So original shareholders A and B have gone or have been diluted down from 50 to 33.33%.
28:36 – 28:39
So that’s share diluting in a nutshell.
28:40 – 28:43
How that operates from a legal standpoint is probably a better question.
28:43 – 28:46
Jameson, whether you can actually do that or not. Yeah, you can.
28:47 – 28:51
It’s something we see often where, and I’m not an accountant, so please step in here if I say
28:51 – 28:56
something wrong, but where people want to avoid those CGT scenarios and they want to issue shares
28:56 – 29:00
in a company rather than do share transfers.
29:00 – 29:02
And it’s just a way of, you know, avoiding those CGTs.
29:03 – 29:08
But the issue of shares normally will stand to be a shareholder resolution.
29:08 – 29:14
So then that can vary from, you know, depending on what percent the shareholder agreement says.
29:14 – 29:19
You know, that could be 75%, that could be 85%, or it could be a unanimous decision.
29:19 – 29:23
So it could require everyone to go, yeah, we’re happy to dilute our shares basically.
29:25 – 29:30
And yeah, like Carol said, it’s really utilised around where a company wants to capital raise.
29:30 – 29:34
So influx some money into the business if they’ve got new things that they want to try and venture out and do.
29:34 – 29:41
If they’ve got products they want to start some more R&D on, things like that, whatever that may be. It’s utilised for that.
29:42 – 29:47
So from a tax perspective, you mentioned before, like, you know, can you do that or not?
29:48 – 29:53
From a tax perspective, there’s no issue with issuing shares if they’re done at market value.
29:53 – 30:01
If you issue shares less than market value, if the loss or gain in the original shareholding
30:01 – 30:06
is greater than $150,000, then that’s where it can actually create a CGT event.
30:06 – 30:11
So on the earliest stages of business, it can be quite common to try and bring that other person
30:11 – 30:12
in without creating a CGT event.
30:12 – 30:17
But we have to just make sure that it does abide by the general value shifting regime because
30:17 – 30:23
that’s where other CGT applications can solarise. Controversial topic.
30:23 – 30:26
I am a sole trader, so I just work under my personal ABN.
30:26 – 30:29
I started my business years ago. It’s doing amazing.
30:29 – 30:35
I’m ready to bring on some additional business partners. I need a restructure.
30:35 – 30:38
Who am I coming to see, a lawyer or an accountant? Both.
30:40 – 30:45
Common practice is usually they’ll reach out to the accountant, and that’s just generally because
30:45 – 30:48
they have probably more frequent touch points with the accountant.
30:49 – 30:55
An accountant or a good accountant will have a good oversight on how the business works and
30:55 – 30:58
the general commercial nature of things like this.
30:58 – 31:02
So usually they’ll have the concern, speak to the accountant, and then the accountant will handle
31:02 – 31:03
the tax side of things.
31:03 – 31:09
But then generally they’ll recommend making sure that all the agreements and actual legal documents
31:09 – 31:11
are behind it all, obviously done by a lawyer.
31:11 – 31:17
What if I have assets under my personal name that are tied to the business and now I’m setting up a new entity?
31:18 – 31:19
Do I transfer everything over?
31:20 – 31:21
It’ll depend on how you do it.
31:22 – 31:26
There’s a few different pathways on how you can restructure a business, and they all have different
31:26 – 31:29
tax consequences and other legal implications as well.
31:29 – 31:35
So that’s where, again, your accountant or lawyer will look at your options and present option A, B, C.
31:35 – 31:39
Each will have their pros and cons, and then it’s ultimately up to the client what they want to do. Awesome.
31:39 – 31:46
I feel like that’s probably a whole other podcast episode. You can agree. Honestly, yeah. 100%. Okay, awesome.
31:46 – 31:52
So if someone is suing the business, can the shareholders be affected in terms of assets? Yeah, right.
31:53 – 31:54
Well, they could lose their business.
31:54 – 31:59
They could lose their income. Look, they’re only liable.
32:00 – 32:04
So their liability is limited to the amount unpaid of their shares.
32:04 – 32:11
So, for example, if someone starts up a new $2 company and it costs them $120 to issue 120 shares
32:11 – 32:16
and they’ve only paid $90 of those shares, they’re going to be liable for that $30 that’s still
32:16 – 32:20
outstanding because that’s technically an asset of the company that needs to be paid.
32:20 – 32:26
So that $30 is then attributed towards repaying creditors or repaying someone that sued them or whatever it is.
32:27 – 32:30
So they’re only liable for their shareholding proportion that remains unpaid.
32:31 – 32:33
So that’s pretty much where their liability stops.
32:33 – 32:35
So your house, everything like that, do you see that commonly?
32:36 – 32:40
Because I actually see that quite commonly on my side where we’ll get a new client on board,
32:40 – 32:43
we’ll add the company to ASIC, we’ll have a look at the shareholding.
32:43 – 32:46
We might sometimes see that as 150,000 of unpaid shares.
32:48 – 32:50
So does that never come to issue?
32:50 – 32:53
Do you have any scenarios around that? Yeah, it sometimes can.
32:53 – 32:58
I mean it probably comes more on share issues rather than transfers.
32:58 – 33:04
I mean your issues, we’ve got a client recently where we’re currently undertaking a share issue
33:04 – 33:08
for, I think her value was like $2.something million.
33:09 – 33:17
And the issue will be a vendor finance situation so then you’ve got to comply without getting too technical and boring.
33:17 – 33:24
Your 260B waivers, things like that, for companies to vendor finance these situations.
33:26 – 33:28
But again, it’s a loan scenario, right?
33:28 – 33:33
So you’ve got a $2 million liability that needs to be repaid to the company and what portion
33:33 – 33:35
of that is actually repaid at that current time.
33:36 – 33:40
You’ve got a shareholder liability that say, if it’s going to be repaid over five years, let’s
33:40 – 33:44
say in two and a half years something happens and the company gets sued, then technically there’s
33:44 – 33:45
still that unpaid portion there.
33:47 – 33:52
Definitely something that people don’t think about on the back end, but for sure something we can…
33:52 – 33:57
A lot of the time I see is when there’s like sweat equity that the owners are trying to achieve.
33:57 – 34:05
So they’ll be a business owner, so shareholder A, they’ll have an employee, they’ll want to
34:05 – 34:08
issue them shares but usually the employee won’t pay for it.
34:08 – 34:14
So they’ll go, look, invest extra amount of time and we’ll start recording it from unpaid to paid.
34:14 – 34:18
A lot of the time I don’t think the employee that’s becoming a shareholder actually understands
34:18 – 34:20
that they’re still liable for those unpaid shares.
34:21 – 34:23
So something to be really mindful of.
34:23 – 34:27
If you do have unpaid shares, it’s not a pretty…
34:27 – 34:30
No, I mean, yeah, the reality is you can get…
34:30 – 34:33
Company gets sued and you’re sitting there, you’ve got to cough up tens of thousands of dollars
34:33 – 34:35
or in some cases hundreds or millions.
34:36 – 34:38
So yeah, especially in that scenario for sure.
34:39 – 34:45
I think there’s a couple of people asking what is vendor finance? Yeah, right. Well…
34:45 – 34:46
In a very short form.
34:47 – 34:50
Look, it can happen in a variety of scenarios.
34:50 – 34:52
We’re seeing it more and more with business purchases at the moment.
34:52 – 34:58
So where someone wants to buy a business, you’ve got a vendor finance situation where that company
34:58 – 35:03
or that shareholder or the owner in the business will say, hey, yeah, look, happy to transfer you the business.
35:03 – 35:07
We’ll pay you and, you know, it can be worded as an earn out or whatever it can be.
35:07 – 35:13
But, you know, you’ll pay me over, you know, we ideally don’t like to see it for a period of
35:13 – 35:19
12 months or more, but you just basically pay reoccurring fees every month or every, you know,
35:19 – 35:20
quarter or whatever it is.
35:20 – 35:24
And the reason sometimes we’re probably seeing it more now than ever is you’ve got a lot of
35:24 – 35:31
businesses that are being sold that are subject to one head of the company, one guy that produces all the income.
35:31 – 35:33
And if he leaves, then where are these clients going to go?
35:33 – 35:37
So the idea is you tie it into the performance of the business.
35:37 – 35:42
So if it consistently hits the numbers, even without that guy there, happy to pay that value figure.
35:42 – 35:47
But if it doesn’t and it doesn’t hit those figures, then, you know, it’s obvious that it’s a
35:47 – 35:48
pretty big detriment to the business for this guy to leave.
35:48 – 35:53
But we’ve bought it, so we’ll drop the value down and you don’t actually get those payout figures.
35:53 – 35:58
But that can look like on a really surface level, it can basically be you got a million dollar
35:58 – 36:03
purchase price, you might pay $700,000 up front and you’ll vendor finance, you know, $300,000
36:03 – 36:08
as like an own out kind of thing and you’ll pay it over a 12-month period based on performance of the business.
36:08 – 36:12
So it’s pretty much the actual business profits that pay the difference. Correct. Yeah. Yeah, exactly right.
36:13 – 36:18
And, you know, and honestly, we have seen scenarios where, you know, there’s actually no money up front.
36:18 – 36:23
We’ve had a tattoo parlor previously last year that actually did that where he said, yeah, you
36:23 – 36:32
can have the business straight away, run it and then you’ll just pay me the $150,000 value over three years. Very common.
36:32 – 36:33
We see it a lot here. Yeah.
36:34 – 36:39
It’s just, you know, people are less risk-intensive these days.
36:39 – 36:41
So, you know, people want to try and off-risk themselves as much as possible.
36:41 – 36:46
So if you can tie it directly to the business performance, then it’s beneficial.
36:46 – 36:50
But obviously, we’ll try and, yeah, we’ll put a bunch more detail on that.
36:50 – 36:57
Something to be mindful of with vendor finance, guys, is it can create a really nasty tax consequence. Okay.
36:57 – 37:03
So essentially, you’re using the company’s profit to buy the shares that you’ve acquired in that company.
37:04 – 37:05
The company can’t earn its own shares.
37:06 – 37:09
So it’s either an individual or, like I said before, potentially a trust or a company.
37:10 – 37:16
If you’re using the company profit to pay off the shareholder, well, the exiting shareholder,
37:17 – 37:21
the way you’d have to do that is by way of a dividend or it could either be a loan.
37:21 – 37:22
You’re doing it as a dividend.
37:23 – 37:28
Again, it’s going to be depending on how much ranking credits there is and the amounts that you’re taking out.
37:28 – 37:31
In that scenario before that you mentioned, you know, if you’ve got $700,000 as the deposit
37:31 – 37:36
and $300,000 as a difference over 12 months, that means you’d have to declare a $300,000 dividend
37:36 – 37:40
to you personally, which, again, can create quite a nasty tax implication.
37:40 – 37:43
Anything over $180,000, you’re paying 47% tax on.
37:43 – 37:47
So a pretty penny will be paid on that tax bill.
37:47 – 37:53
And just remembering, if you’re taking that $300,000 out to pay the exiting shareholder, you
37:53 – 37:54
don’t have $300,000 in a bank.
37:54 – 37:55
You’ve given that to the other person.
37:55 – 37:58
So then you have to cop up the 47% of that $300,000 you sell personally.
37:59 – 38:03
What we commonly will see is they’ll take the money out in the form of a loan versus a dividend,
38:04 – 38:08
which then will fall under the Division 7A tax implications.
38:09 – 38:13
So vendor finance is good if it, you know, allows you to be able to buy the business and make
38:13 – 38:17
the whole transaction work, but it usually results in a pretty nasty tax implication.
38:17 – 38:18
So always speak to your accountant.
38:18 – 38:21
Make sure you get the right advice before undergoing that, for sure.
38:21 – 38:27
Yeah, and that’s what I was talking about before with the share issue of $200,000, that’s a Div 7A loan. Yeah, nice.
38:29 – 38:34
Yeah, so there’s a thousand ways you can skin a cat, but vendor finance is just a much more common thing these days. Yeah, cool.
38:35 – 38:40
So if I do, if I want to sell the business, my other shareholders don’t, but they also can’t
38:40 – 38:45
afford to buy me out, where do I stand? That’s a fun conversation.
38:45 – 38:47
Do you have a shareholder’s agreement?
38:48 – 38:54
So where a company owns a business or, you know, where a unit trust might own a business or
38:54 – 38:59
whatever the scenario is, you’ve got a business that needs to get sold, that business, or selling
38:59 – 39:03
that company’s core business, will usually need a unanimous decision.
39:03 – 39:07
If you’re talking about the shares in that company that owns the business, if you’re a shareholder
39:07 – 39:12
and you say, hey, I want to leave, and these guys can’t afford to buy you out, again, you can
39:12 – 39:15
introduce those vendor finance provisions.
39:16 – 39:20
Alternatively, they’ll have that first right of refusal and they’ll say, hey, yeah, if I want
39:20 – 39:20
to buy it, I’ll buy it.
39:20 – 39:22
If I can’t afford it, let’s do this.
39:23 – 39:29
If not, then that person might actually go, hey, I’ll go to market with my shares and see if
39:29 – 39:30
someone wants to buy it.
39:31 – 39:34
If they go to market and someone’s interested in the business and they say, yeah, cool, I’ll
39:34 – 39:42
jump in, I think I can contribute X, Y, Z, then you’ve got shareholder, those shareholders that
39:42 – 39:45
are remaining have to basically say, yep, I’m happy for that person to be in there.
39:46 – 39:50
Otherwise, you just keep going in swings and rounds about. Okay, cool.
39:51 – 39:55
So, going back and forth with my accountant and lawyer, all these fees are starting to add up.
39:55 – 39:57
Callum, are they tax deductible? Yep.
39:57 – 40:00
As long as they relate to the business, they’ll generally be tax deductible.
40:01 – 40:04
The one, well, the common scenario that we see with legal fees where they aren’t deductible
40:04 – 40:11
is if it’s a shareholder of the business and they’re using the company money to pay for a potential
40:11 – 40:13
marital breakdown or something like that.
40:13 – 40:16
Obviously, a marital breakdown doesn’t relate to the business, so that wouldn’t be deductible.
40:16 – 40:21
But nine times out of ten, most legal fees, if it relates to businesses and there’s a clear
40:21 – 40:26
nexus between the earnings and the expense, will be deductible. Okay, awesome.
40:26 – 40:29
I think you had some questions for Jameson as well, Callum. I do.
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I’m starting to be ready, man.
40:31 – 40:34
So, first question is, what are director’s duties?
40:35 – 40:41
Yeah, so your director’s duties are your, so where you’re a director of a company, you’ve got
40:41 – 40:44
a requirement to, you know, there’s, I think there’s, from the top of my head, I think there’s
40:44 – 40:48
nine or seven of them or whatever they are, but they fall under the Corporations Act and they’re
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a requirement for directors to act in a certain way.
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If you fail to act in those ways, so, you know, briefly, it’s, you know, act in good faith,
40:56 – 41:02
don’t trade insolvent, you know, those things basically, you know, not misuse, no misuse of
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information, you know, declare conflicts of interest, so you can’t vote on matters that will actually personally benefit you.
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If you’re doing those things and you’re found to be doing those things and you’re acting against
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your director duties, you can fall into some pretty significant ASIC penalties and you can find
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yourself in some hot water pretty quick.
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Yeah, so when operating through a company, usually the director is separated from that company, right?
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Yeah, well, that director, so if a business is operating as a company project, yes, that director
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will sit on the board of that business or the board of that company, yeah.
41:37 – 41:40
Yeah, but if someone’s, you know, suing their business or something like that, they’re generally
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suing that company or another director in a personal capacity? Yeah.
41:43 – 41:48
Correct me if I’m wrong, but if those director duties are proven to be failed and that’s when
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that veil can essentially be lifted and then that creditor of the company can come up to the
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director, right? 100%, so if you’re found as a director to be taking ridiculous remuneration,
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taking a heap of, you know, whatever it is, you’re not avoiding conflicts of interest, you’re
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running into the pain of not paying your bills, you’re trading insolvently, whatever it is,
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so you’re not paying employees super, all that stuff, you can absolutely get put on the chopping block.
42:12 – 42:18
And, you know, directors of companies in most scenarios, you know, where you’ve got leasing
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and things like that, you’re normally the one to provide that guarantee. Yeah.
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So, as we touched on before, trying to off-risk yourself and, you know, make sure you hold everything else up.
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Very important for listeners to know because it’s a common question that I get asked and that’s,
42:31 – 42:34
you know, Cal, if I’m operating through a company, I’m pretty much sweet, right?
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I can do whatever I want and, you know, my personal house and everything like that is protected. Yeah.
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But if you’re, you know, running the business into the ground intentionally, that would generally
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be failing your director’s duties and that’s when, you know, that whole protection scheme can
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be unlifted and, you know, put on the chopping block.
42:50 – 42:56
Yeah, and, you know, it’s funny, like, you’ve got director duties, as little as keeping good books and records.
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So, people failing to do that, you know, technically, you’re in breach of those fiduciary duties
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of directorship and you can find yourself in some hot water if ASIC ever come knocking.
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So, yeah, probably one of the most key things is to get online, have a look at those duties that are really accessible.
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Go to the Australian Institute of Company Directors, have a look there.
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You know, when you get your director ID, there’s director courses that you can do.
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You know, the more that you do those things and more that you stay up to date and do yearly
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courses on those director duties and things like that, the better chance you’re not going to
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find yourself in hot water.
43:30 – 43:34
So, director’s duties to keep accurate records and…
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Yeah, so you’ve got to keep accurate records of your business, accounting, everything like that.
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Do you hear that, everyone?
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So, keep your books up to date.
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Keep your books up to date, very important.
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Go to a good account. It makes sense, right?
43:45 – 43:49
Because if you don’t have accurate books, you can’t see whether you’re trading solvently or not, right?
43:49 – 43:51
You could be 100% trading solvently.
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You haven’t reconciled your books in the last two or three years and you don’t think you’re
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making money, but in reality you’re not.
43:57 – 44:01
So, again, this highlights the importance of having accurate records, everyone.
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Yeah, 100%, have a good accountant. Like you are.
44:05 – 44:11
And every year when your annual company fees due, you actually have to state that you are trading solvently.
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You have to sign off on that every single year. Yeah, yeah, exactly right.
44:15 – 44:21
Cool, next question I had is, what risks do directors of companies or corporate trustees have?
44:21 – 44:24
So, we’ve probably briefly touched on that, but do you want to elaborate a little bit more?
44:24 – 44:28
Honestly, it’s just that risk of, if you go against your duties and do something wrong, then
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your head’s on the chopping block.
44:29 – 44:33
It’s probably the easiest way to do it without diving in too much. Yeah.
44:33 – 44:37
Your corporate trustee scenario where you’re acting as a trustee of a trust, then you’re actually
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acting, you know, in the best interest of beneficiaries. Sure.
44:41 – 44:47
And then you’ve got a whole other world of, you’ve got the trust act, which you’ve got to rely on as well.
44:47 – 44:48
So, you’ve got all these trustee.
44:48 – 44:51
Yeah, you’ve got trustee powers and things like that that you need to follow.
44:52 – 44:55
Again, if you break that, then you could be on the chopping block as well.
44:55 – 44:58
So, there’s heaps of guidelines and things like that.
44:59 – 45:05
But, yeah, it’s important just to be open and honest and just a good person. I like it.
45:05 – 45:07
We’ve talked about shareholders’ agreements.
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We’ve talked about unit holders’ agreements.
45:10 – 45:11
What about a partnership agreement?
45:11 – 45:14
Are they important and would you recommend one? Yeah, absolutely.
45:15 – 45:19
So, partnerships, I personally believe partnerships are probably a bit dated in their use. Agreed.
45:19 – 45:24
I think, you know, it’s an act from 1891 or something like that, that partnership act.
45:24 – 45:27
So, it’s, and I think it hasn’t been touched on.
45:27 – 45:29
It hasn’t been updated since 2012. Could be wrong.
45:29 – 45:31
Could be spitting absolute lies here.
45:31 – 45:34
But, yeah, look, it’s, partnerships are good.
45:34 – 45:38
They’re, but your partnership agreements will deal with, you know, splits of profits, you know,
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who’s liable, you know, who’s liable for losses, things like that.
45:43 – 45:47
So, they’re really, really important because, again, they govern the relationship between everyone.
45:48 – 45:53
But, if you’re thinking about a partnership, just don’t. No, agreed.
45:54 – 45:59
With partnerships, everyone, to set one up, it’s as easy as going on the ABR and me and Ana
45:59 – 46:01
can register a partnership right now in five minutes. Correct.
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There’s no, you know, requirements on how the profits are distributed or anything like that
46:05 – 46:10
or who’s contributed what assets and who’s entitled to take that kind of asset back out.
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We see this all the time as accountants.
46:12 – 46:14
You know, there’ll just be two friends. They’re going into business.
46:15 – 46:18
They go, yep, cool, we’re going to split, you know, 50-50 or 70-30, whatever it is.
46:18 – 46:24
They’ll register a partnership on the ABR and then, you know, they come into some hot water down the line.
46:25 – 46:28
So, you know, I personally do agree that they can be, they’re quite dated.
46:28 – 46:29
They do have their place.
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Partnership or family trust can be quite beneficial from a tax perspective when you’ve got property and so forth involved.
46:34 – 46:38
But, again, when it comes to structuring, guys, just make sure you speak to the right people,
46:38 – 46:44
such as a lawyer and accountant, to get the right advice because there’s so many considerations to take into account. Yeah, for sure.
46:44 – 46:51
I’ve got a mate that started up an online, like an e-commerce kind of page for, you know, suites and things like that.
46:51 – 46:55
They’ve got a partnership at the moment and I’ve kind of said to them, hey, look, probably best
46:55 – 46:56
to move out of that.
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Whilst it’s not valued too high, you can sell it off at a pretty low rate.
47:01 – 47:06
So, yeah, they’ve realised how frustrating a partnership can be.
47:06 – 47:11
So, moving across and getting the right docs and things in place are the best idea. Okay, cool.
47:12 – 47:15
Common question we’ve been getting asked as of late with the property market being so hot right
47:15 – 47:18
now is, you know, joint ventures and partnerships.
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What’s the difference between a JV or what is a JV and what’s the difference between a JV and a partnership?
47:23 – 47:26
Yeah, so your partnership is a continued basis.
47:26 – 47:28
Your JV is for one specific purpose.
47:29 – 47:32
So, you know, you might have a JV or a joint venture.
47:32 – 47:37
So a joint venture is pretty much an agreement between two or more parties that say, hey, you
47:37 – 47:38
know, this is what we’re going to do.
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This is exactly what we’re going to do.
47:40 – 47:43
Property development, we’ve got a client up in Harvey Bay that’s doing one at the moment.
47:44 – 47:49
If you’ve got a, you know, they’re doing a joint venture with another company that, you know,
47:49 – 47:51
that company will act as a project manager.
47:52 – 47:55
But, you know, they’re the people who own the land.
47:55 – 47:58
So, you kind of get people with different skills normally involved in the joint venture.
47:59 – 48:06
Your joint ventures are really useful because, you know, as I said, you can kind of just partner
48:06 – 48:09
people in with different skills in the relevant areas.
48:09 – 48:14
They’re a little bit different to the partnership because they basically end once that project or whatever is completed.
48:14 – 48:18
So that JV is, you know, again, near the joint ventures agreement.
48:19 – 48:22
Because that will govern and detail the governance obligations of each party.
48:23 – 48:26
So things like financial contributions, profit sharing, termination.
48:28 – 48:34
But the number one thing we always see an issue with in the JV is, at the end of this whole
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project, who owns the intellectual property of it?
48:37 – 48:41
And dealing with that is probably one of the most key things because you’ve got things that
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you’ve worked on, you know, in some cases, 24, 36 months.
48:45 – 48:47
At the end of it, you know, where does that all kind of go?
48:48 – 48:51
So a JV is not a separate legal entity though, right? No, no.
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It’s just an agreement between two people.
48:53 – 48:55
Correct, to do a certain task, pretty much. Yep.
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So who has the bank account?
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That’s all dealt with under the JV agreement.
49:00 – 49:05
So a common scenario could be, you know, actually operating the operation that starts through
49:05 – 49:09
a company and there’s a JV between a builder and a project manager and how they’re going to
49:09 – 49:11
contribute what skillset and resources to that company.
49:12 – 49:17
Yeah, and it’s honestly, you’re more so better to use it in the property market.
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It’s a much more useful tool in the property market than it is elsewhere.
49:20 – 49:26
You wouldn’t really do a JV if you’ve got, you know, an accountant and a lawyer.
49:26 – 49:29
You know, you just put it under one company more than likely.
49:29 – 49:36
Yeah, then we’d have a shareholder’s agreement between you and I as to what we’re contributing to the business. Yeah, correct, exactly right. But yeah. Cool.
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All right, that’s all the questions I have. That’s it for me.
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Did you want to touch on anything else?
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There’s nothing really I want to touch on.
49:43 – 49:47
I mean, you guys covered most of it here, so I appreciate you guys having me on. Thanks for coming.