Are you looking to establish a start-up business, or invest in an existing business? If so, an ownership agreement is an important initial step which is required to formalise the deal. This two-part series will outline the most important matters you should consider when entering into an ownership agreement.
An ownership agreement determines the rights and obligations an owner has in relation to a business and the ownership entity. While many owners may find they do not need to refer to their ownership agreement on a regular basis, it nonetheless provides a useful touchstone in circumstances where the owners disagree on an important matter. Without a workable and accurate ownership agreement in place, such disagreements can have the effect of destabilising and devaluing the business, as well as causing owners to incur a substantial amount of legal and accounting fees in order to resolve a disagreement.
The considerations in relation to ownership agreements remain substantially the same whether the ownership entity is a company, trust, partnership or joint venture. This is therefore relevant to:
- shareholders agreements;
- unitholders agreements; and
- partnership agreements.
A standard company constitution, trust deed or partnership agreement will generally provide only a basic level of rights and obligations and fail to provide a pathway forward in relation to many of the disagreements which can arise between owners. Furthermore, there is no such thing as a “one size fits all” ownership agreement – such documents should always be tailored to their application.
This concludes part one of the Insights into Ownership Agreements series. Click here to read part two.