Do You Want To Start A New Company In Australia?
We are commercial lawyers and we assist many business owner clients who are starting up new companies.
Unless they want to create an unusual type of company, like a not-for-profit company or a charitable body, we usually don’t set the company up for them. Don’t go away yet. There’s a very important reason why we usually don’t handle the incorporation of ordinary companies.
In Australia, the company registration process has been automated by many reliable and cost-effective online service providers, like Company 123. We usually refer our clients to these online providers, but ask them to come back when they are finished.
Why? Because online service providers, while fast and cheap, produce standard documents – specifically, company constitutions – that are effective in a lot of situations, but may need adjustment for a particular situation. It’s like buying a coat at a department store. Maybe the sleeves are too long for you? You will need to take the coat to a tailor or an alteration service to have the sleeves taken up.
Why Editing Your Company’s Constitution May Be Important
Here’s one example of an edit we might make. The standard company constitutions produced by most online company incorporation services include default settings for many things, such as the quorum for shareholders and directors meetings, and the minimum number of votes needed to pass resolutions. (The quorum is the number of people needed to validly hold a meeting.) Let’s say your company has three shareholders, who are equal “business partners”, but the minimum number of votes needed to pass an ordinary resolution set by your constitution is the votes of shareholders holding at least 51% of the issued shares. See the problem? Two business partners can gang up against the third one. If you don’t want that, then you have to edit the constitution.
In our experience, most people (it could be as high as 80%) who create new companies never read their company constitution. Why? Because the constitution is long, legal document full of dense concepts and unusual language. Let us do that for you. We can review your company constitution and help you make changes to it so that it is more suitable for your use. Don’t discover there is a problem in your constitution when a dispute erupts with your business partners, maybe years after you create the company.
You May Also Need A Shareholders Agreement
In addition to checking and, if necessary, editing the constitution, shareholders may also need to have a shareholders agreement. If we compare a company to a computer, the constitution is like the OS (the operating system) and the shareholders agreement is like the apps or programs. The constitution is a basic set of rules on a common set of topics that all companies have. The shareholders agreement is a special set of extra rules, just for your company. It deals with a range of topics, including what each shareholder/director is expected to contribute to the business, and what they get out of it.
If you sell the company, the constitution is passed with the company but the shareholder agreement isn’t. The new owners will create their own shareholders agreement if they need one. By the way, that is one of the major reasons why people incorporate their businesses: it can make the job of selling the business easier. What you do is sell all your shares to the new “owner” and resign as director.
If you are a new company director and shareholder, you may need ongoing advice about a range of things related to running a company, as issues arise. That’s why creating a relationship with a lawyer and an accountant who can assist you with these issues is important. If you need assistance from us, or just want to talk about something, please contact us.
Read our related blog post on the difference between shareholder agreements and partnership agreements.
If you’re interested in how company formation works, you may like to see our You Tube video on Starting Up A Company In Australia.
Did you find this webpage useful? Please visit our Resources page for links to more of our articles and presentations on business law topics. Browse through the list to see if anything there interests you.
Do you require assistance with starting a new company or setting up shareholders agreement? Contact us to discuss your situation. We can assist you. We have assisted many SME business owners with setting up new companies. See our Customer Profiles page to see the stories of many of our clients and how we have worked with them to build a better foundation for their business success.
[The author of this webpage is James Irving, a Perth commercial lawyer who prepares shareholders agreements regularly for his clients.]