Entry & Exit of Business Partners

Entry and Exit of Business Partners

 

Leigh Adams Commercial Lawyers are experts at protecting their business clients. Leigh is an Accredited Specialist in Business Law. Only 0.5% (half a percent) of New South Wales lawyers have this postgraduate qualification.

Our qualification means that we can protect your business even if your business partners come and go as time goes by.

 

Buy out

You have built up your business and a third party wants to buy you out. You are happy to sell the whole of your interest in the company and move on to other endeavours. But your business partner wants to stay on. The would-be buyer is from the big-end of town and you begin to feel the pressure of their presence. They are offering a good price, but they want their own lawyers to draft the legal documents. They want to pay only 70% on completion with the balance on an “earn out” arrangement by which the full price they have offered is dependent on the performance of the business over the next three years. Moreover they want to keep your business partner working in the business for the next five years although he only wants to continue working for three.

They want to buy the business itself although your accountant has suggested that for tax reasons, you should be selling your shares in the business instead, to take advantage of the “Small Business CGT Concessions” under “Division 152”.

Very quickly you feel that any response you make to these issues at hand could be the wrong one. The answer is: give us a call. We frequently accept instructions in such matters and can explain to our clients the best way forward so that the deal moves ahead in the appropriate manner and your interests and expectations are met and your apprehensions disappear.

 

Your Business Partner wants more than you want to give him

What about when you are negotiating with a new business partner who is developing the brand of your new business venture. He or she is very gifted and you see the need for an up-to-the-minute online presence, but the potential business partner wants to have an interest in not only the business you are starting up, but also any other business that uses the same branding. How can you both proceed when you feel anxious about making such a binding promise when it is “early days”? The potential business partner is intelligent and will see right through any fluffy promises you might be inclined to make.

 

Leigh Adams Business Lawyers can draft clauses that keep both parties content, so that they can move ahead with provisions in place that balance the needs, wants and fears of each party.

 

Managing the relationship between current shareholders

Of course there are circumstances where you need to govern the relationship between current shareholders or unit holders so that their exit from or others’ entry into the business is managed – what can you do to cover this?

Our documents, which are subject to an ATO Product Ruling, manage the CGT issues, the funding issues, the timing issues, the valuation issues, and also set out clearly the events which can trigger a right to sell or a right to buy. This means that the business moves ahead seamlessly despite any one or more business partners or shareholders or unit holders wishing to enter into or exit from a current business arrangement. There is little room for dispute because all the main issues are dealt with in the legal agreement.

 

You want your children to take over?

We recently acted for the trustee of a discretionary trust operating a very successful business. The trustee shareholder and his wife were the only beneficiaries of the discretionary trust. How could he pass control to his three sons without triggering massive capital gains tax?

The answer was to firstly amend the terms of the trust to allow for a new trustee to be appointed without any ad valorem stamp duty implications. Then the former trustee (which after resigning as trustee, was not trading as all) issued shares to the three sons for a price that was used by the former trustee company to buy the business. The new shareholders of the old trustee company entered into a buy–sell agreement between them to manage their entry and exit from the business into the future.

 

For peace of mind in your business transactions, call Leigh at Leigh Adams Business Lawyers on 02 9964 0022 or email leigh@lalawyers.com.au.