FAQ
Find answers to the most
Frequently Asked Questions
When you consider availing legal services for your start up or business, it is normal to have a lot of questions cross your mind. We have tried to answer the most frequently asked questions by start up founders and business owners like yourself.
A company constitution is (most of the time) a standard document that comes with a newly incorporated company covering topics such as procedures for directors’ meetings, members’ meetings, issuing new shares and transferring existing shares.
A shareholders’ agreement is a more detailed document, usually aimed providing majority shareholders’ additional powers they would not otherwise have under law, or conversely, to provide minority shareholders’ with additional protections they would not otherwise have.
While a custom-made constitution can cover similar topics to a shareholders’ agreement, it is important to remember that a company constitution can be replaced on a 75% vote, where a shareholders’ agreement can only be replaced on agreement of all parties to the shareholders’ agreement. A shareholders’ agreement is therefore more vital to protect minority shareholders.
Shareholders’ agreements usually cover:
- which shareholders will have the right to appoint a representative director
- weight of votes (whether each representative director will have one equal vote or whether their vote will be based on the percentage of the shares held by their appointing shareholder)
- drag along rights (the right of a majority shareholder to force minority shareholders to join in selling their shares to a third party)
- tag along rights (the right of minority shareholders to elect to join a sale where a majority shareholder is selling its shares to a third party)
- buy-out mechanisms (such as “Texas shoot-out clauses” or “Russian roulette clauses”)
- protection of confidential information and intellectual property
- non-compete and non-solicitation clauses
A buy–sell deed deals with the buyout of a shareholder that suffers a “triggering event” (usually death, total and permanent disability or trauma).
Usually a buy–sell deed will be backed by an insurance policy, whereby the affected shareholder receives a payout in exchange for transferring its shares to the remaining shareholders or the company.
A trade mark is a trader’s badge of origin. Trade marks are intended to protect a trader’s goodwill in a product or name while protecting the public from counterfeit goods or services.
A trade mark may be a letter, word, name, signature, number, logo, picture, brand, aspect of packaging, shape, colour, sound or scent, or any combination of those.
Trade marks are registered in relation to certain classes of goods and/or services. Other traders are therefore free to use or register the same trade mark for unrelated goods and/or services.
You should register your trade mark as soon as possible, as the priority date for a trade mark is the date it is filed. Having the earliest priority date possible is important in case someone else files a similar trade mark.
The owner of a registered trade mark has the exclusive rights to use the trade mark and authorise other persons to use the trade mark in relation to the goods and/or services in respect of which the trade mark is registered. This means you can stop someone else using a trade mark in relation to goods or services that are the same or similar to the goods or services covered by your registered trade mark.
Registered trade marks can also be sold, transferred or licensed to another person, and even encumbered.
A registered trade mark lasts 10 years, and can be continually renewed for successive 10 year periods by paying a renewal fee.
A person infringes a registered trade mark if the person uses, as a trade mark, a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered.
Most trade mark disputes can usually be resolved quickly and commercially. Sometimes all it takes is to point out to the infringer that you are the registered owner of a particular trade mark. When the stakes are high, however, it may be necessary to commence court proceedings.
You should get legal advice as soon as possible. The accusation will either be legitimate, baseless or arguable, but in any case, you should have a lawyer respond to protect your position.
Corporate structuring is often used to isolate trade marks from risks your trading entity is exposed to.
If such corporate structuring is not utilised properly, it can actually invalidate your trade mark.
We have the methods to bring the nuances of corporate structuring and trade mark law together to provide your trade mark portfolio with the ultimate protection.
A simple agreement for future equity (SAFE) is an equity financing instrument that was developed by Y Combinator in the United States. The SAFE instrument was designed to accelerate the seed funding round for startups by providing a standard, short document (usually five pages) to simplify negotiations.
Convertible notes are debt instruments (with an option to convert into shares). If the investor does not choose to convert their convertible notes into shares, then the company will be obliged to repay the face value of the convertible note to the investor. Convertible notes usually also require the company to pay the investor interest payments (commonly called “coupons”).
Startup structuring involves selecting the most suitable legal entities and ownership structure for your startup. Choosing the most suitable is important to ensure your startup is ready to seize capital raising and exit opportunities.
Examples include companies, unit trusts, discretionary trusts, partnerships, and joint ventures.
The most suitable legal entity will depend on the type of business and your goals for the future.
Corporate structuring can also be used to restructure an existing corporate structure.
Startup structuring is important because having the wrong corporate structure can significantly delay a capital raise or exit event (or even cause the deal to fall over). Further, the wrong corporate structure can also invalidate trade mark registrations and cause unnecessary tax complications.
Yes, we have the methods to utilise tax concessions to restructure your existing corporate structure into one that will streamline capital raising and exit events, protect your trade mark portfolio and prevent adverse tax consequences.
A merger involves two companies combining. Usually, the smaller company (called the “target”) will sell its business to the larger company (the “acquirer”), and the shareholders in the target will get shares in the acquirer, instead of cash.
A share sale is where the shareholders of a company sell their shares. A share sale can either be a complete sell out or a partial selldown.
A trade sale is where the company sells its business assets. The underlying ownership of the selling entity does not change. Only ownership of the assets being sold changes
It is important to ensure that you get your corporate structure cleaned up before attempting to find an acquirer for your startup. Having an inadequate corporate structure could cause your deal to be delayed (until you restructure), fall over (due to delays) or cause you a poor tax outcome if the deal proceeds without restructuring. You should also go through a pre-sale process with an M&A adviser to resolve any issues that may negatively affect the sale price.
The two transaction costs to keep in mind are GST and transfer duty.
GST will only be applicable to an asset sale if you buy business assets from the seller as stand-alone, and not all of the assets required to run the business. GST is not applicable to share transactions.
Since 1 July 2016, transfer duty does not apply to goodwill, intellectual property or plant and equipment in New South Wales. Transfer duty will apply to plant and equipment, however, if you are taking over the seller’s lease or buying an interest in land. In Queensland, transfer duty will apply to the entire purchase price.
If GST is applicable, then transfer duty will be calculated on the GST-inclusive amount.
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