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  • #978688
    paranda
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    We are looking at forming a Pty Ltd Company structure in the very near future. There are currently 3 families involved, and one other company (based in the US), all of which will hold shares in the company. The proportion of these shares is still to be determined.

    We have been burnt before in business where we have issued shares to a person whom we thought was going to contribute a very significant effort to the business, but instead really did nothing after the initial startup and ended up with a 30% share. We want to avoid this issue this time. Hence why we have not as yet formed the company.

    So I am looking at the best way to structure the company.
    (I realise I will need to take to an accountant / lawyer who knows more about this but was just looking for any guidance on the issue.)

    I have considered issuing different classes of shares to each family group, so that in the future, different classes of dividends can be issued etc on the different classes.

    I also need to consider how many shares to issue, so that we can take on further partners/investors in the future.

    I will also need to figure out any consequences of a US company holding shares – but that is probably an whole other post.

    Any advice welcomed.
    Thanks

    Paranda :)

    #1108851
    Kennethti
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    paranda, post: 120957 wrote:
    We are looking at forming a Pty Ltd Company structure in the very near future. There are currently 3 families involved, and one other company (based in the US), all of which will hold shares in the company. The proportion of these shares is still to be determined.

    We have been burnt before in business where we have issued shares to a person whom we thought was going to contribute a very significant effort to the business, but instead really did nothing after the initial startup and ended up with a 30% share. We want to avoid this issue this time. Hence why we have not as yet formed the company.

    So I am looking at the best way to structure the company.
    (I realise I will need to take to an accountant / lawyer who knows more about this but was just looking for any guidance on the issue.)

    I have considered issuing different classes of shares to each family group, so that in the future, different classes of dividends can be issued etc on the different classes.

    I also need to consider how many shares to issue, so that we can take on further partners/investors in the future.

    I will also need to figure out any consequences of a US company holding shares – but that is probably an whole other post.

    Any advice welcomed.
    Thanks

    Paranda :)

    Hello Paranda,

    It sounds like you do need to speak with a lawyer and an accountant in relation to these matters. Generally share proportions are sorted out between the parties. You are correct in that a company can issue out different classes of shares, to deal with voting power and receiving dividends.

    When putting together the entity you should put together a shareholder’s agreement. This agreement should cover:

    1. The initial division of shares in the company, and who holds those shares.
    2. What each shareholder brings to the table.
    3. What happens if the company requires additional capital.
    4. Meetings of the shareholders.
    5. The rights attached to the different class of shares.
    6. The rights of the shareholders to appoint directors of the company – whether these are voted on, or each shareholder can appoint a director, etc.
    7. What happens to the shares in case a shareholder becomes incapacitated, bankrupt, or passes away.
    8. Mechanisms in case a shareholder wants to leave the business, including any first rights of refusal.
    9. Changes in the constitution.
    10. Any restraint of trade.

    When putting together the entity you should also put together a company constitution. The constitution should replace the standard constitution and should cover:

    1. Meetings of the directors.
    2. Voting of the directors, including any situation where there is a deadlock in voting.
    3. What situations require a unanimous vote of the directors.
    4. Who is authorised to operate bank accounts.
    5. When dividends should be distributed.

    Again, it is best that you see both a lawyer and accountant about putting these together.

    I write a business blog as well – you can see it at http://www.business-lawyer.com.au. If you do need any help with this, give us a call and we can sort out what your requirements are.

    #1108852
    paranda
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    • Total posts: 20
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    Kennethti, post: 121098 wrote:
    Hello Paranda,

    It sounds like you do need to speak with a lawyer and an accountant in relation to these matters. Generally share proportions are sorted out between the parties. You are correct in that a company can issue out different classes of shares, to deal with voting power and receiving dividends.

    When putting together the entity you should put together a shareholder’s agreement. This agreement should cover:

    1. The initial division of shares in the company, and who holds those shares.
    2. What each shareholder brings to the table.
    3. What happens if the company requires additional capital.
    4. Meetings of the shareholders.
    5. The rights attached to the different class of shares.
    6. The rights of the shareholders to appoint directors of the company – whether these are voted on, or each shareholder can appoint a director, etc.
    7. What happens to the shares in case a shareholder becomes incapacitated, bankrupt, or passes away.
    8. Mechanisms in case a shareholder wants to leave the business, including any first rights of refusal.
    9. Changes in the constitution.
    10. Any restraint of trade.

    When putting together the entity you should also put together a company constitution. The constitution should replace the standard constitution and should cover:

    1. Meetings of the directors.
    2. Voting of the directors, including any situation where there is a deadlock in voting.
    3. What situations require a unanimous vote of the directors.
    4. Who is authorised to operate bank accounts.
    5. When dividends should be distributed.

    Again, it is best that you see both a lawyer and accountant about putting these together.

    I write a business blog as well – you can see it at http://www.business-lawyer.com.au. If you do need any help with this, give us a call and we can sort out what your requirements are.

    Thank you Very much Kenneth.
    This is exactly what I was looking for.
    I realise I need to see an accountant & lawyer, but I prefer to go with as much information as I can so to make the most of the meeting.
    Will take a look at your blog – thanks.
    Paranda.

    #1108853
    victorng
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    Don’t automatically assume you need an incorporated JV with everyone taking shares in it. Do look at what you want each party to contribute and consider if issuing them with shares is necessary or desirable.

    To give a simple example, if one party is only contributing technical know-how but wants a share of the profits, then a straightforward consulting arrangement may be all that is needed for that party (with remuneration calculated on a profit share model) rather than ceding a share of the whole enterprise to them.

    Cheers,
    Victor

    #1108854
    Klublok
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    I will also need to figure out any consequences of a US company holding shares – but that is probably an whole other post.

    Just be aware that the US company will not get any benefits of franked dividends that the domestic shareholders will receive.

    Further, I am not sure if the US company will be able to claim any of the tax paid by the Australian company as a foreign tax credit. In other words, your US shareholder should be careful that its dividends will not be double taxed.

    Different classes of shares may be useful in avoiding adverse tax consequences for your US partner by paying unfranked dividends, but the unfranked dividends may be subject to withholding tax.

    Otherwise you may be able to structure the US partner’s contribution as a loan, but there are some rules as to how much foreign debt a company can take on for deductibility purposes.

    From a future investor’s perspective, different classes of shares may be valued differently especially if you have different voting rights which may add unwanted complexity to any due dilligence.

    #1108855
    MyGreatIdea
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    caroline, post: 0 wrote:
    Structuring of the company is the main thing to increase the profitability.

    Sorry Caroline, but I can’t see how the structure of a company could possibly be considered in line with increasing profitability. Perhaps you could explain?

    Wendy :)

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