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Initial Step: Incorporate the Company with the Australian Securities and Investments Commission (ASIC)

We use + recommend an online Australian company incorporation service eCompanies to quickly + cost effectively (circa $550) incorporate + register a new company with ASIC.

You can create the new company yourself or we can create it on your behalf.

Note: There are ongoing annual ASIC fees.

Please read our FAQ:

Why use a "Special Purpose" Corporate Trustee to control your Family / Discretionary Trust? for a summary of the pro's and con's to assist with your decision (if you are considering this strategy).

Other Company Formation Documents

At this time, we recommend all Director/s + Shareholder/s complete our Free Legal Health Check [Australia].

Below we have summarised all of the typically required Company Formation Documents we provide via our Legal Document Portal:

Standard Company

Consent to Act as a Director/Officer for each Director/Officer [FREE];

✅ Pack for appointment of directors/officers [FREE];

✅ Director approval of execution of documents;

✅ Deed of Access and Indemnity for each Director/Officer;

✅ Application forms for issue of up to 5 new securities of different types/classes;

Consent to become a Shareholder, Share Certificates for all initial Shareholdings;

✅ Establishment of all required Company Registers; and the

Company Constitution

✅ Shareholders' / Unitholders' Agreement (If there is more than 1 Shareholder).

"Special Purpose" Corporate Trustee

Consent to Act as a Director/Officer for each Director/Officer [FREE];

✅ Pack for appointment of directors/officers [FREE];

✅ Director approval of execution of documents;

✅ Deed of Access and Indemnity for each Director/Officer;

✅ Application forms for issue of up to 5 new securities of different types/classes;

Consent to become a Shareholder, Share Certificates for all initial Shareholdings; and the

✅ Establishment of all required Company Registers.

Apply for ABN and TFN, and open a separate bank account

Upon establishment of the Company, you need to:

1️⃣  Promptly make an application for an ABN and TFN for the Company (or Trust - if applicable); and

2️⃣  Open a separate bank account in the name of the Company (or Company "as trustee for" the full name of the trust - if applicable).

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What are the benefits of purchasing legal documents directly from Blue Ocean Law Group?

The majority of online Australian Legal Document providers are not law firms!

Whilst it is acknowledged that the legal document templates provided by the majority of [non law-firm] Australian legal document providers will generally have been prepared by lawyers and that the templates they sell are updated from time to time as required by legislative changes.

This does not change the fact that you are not dealing directly with a law firm.

In order to understand what this means from a practical perspective you need to ask the following questions …

What happens?

🧩 If and when you have a legal question?

🧩 If the other party wants to negotiate amendments to the legal document?

🧩 If the legal document does not meet all of the requirements of your specific facts and circumstances?

🧩 If there is a mistake in the legal document?

Lastly, what happens if you are not directly involved in the creation of the legal document?

🧩 What if your accountant, tax agent or financial advisor uses a [non-law firm] online legal document service on your behalf?

To help you answer this question, please read our FAQ: If I create a legal document for my client on your law firm’s website am I giving legal advice or am I a "mere scribe"?

General Answer

A general answer is that online [non-law firm] Australian Legal Document providers are unable to assist clients directly, as they are unable to provide legal advice.

Certain [non-law firm] providers have adopted a business model whereby they earn a substantial ongoing 12 months+ plus referral fee for directing a client to a large directory of law firms who can assist.

This referral fee is charged to the law firm, who may decide to expense it as a marketing cost.

We submit that one way or another, it is ultimately the client who pays for the cost of the referral fee as it increases the cost of doing business for the law firm providing the service to them.

Feedback obtained directly from businesses who have used certain [non-law firm] online services

The valuable feedback we have  obtained is that:

❌ The quality of the online legal documents are basic, non-adaptive templates; such that

❌ The client is more often than not, required to seek assistance from a law firm in order to ensure their legal requirements are met.

As lawyers are required to undertake client interviews and make manual amendments to the legal documents, the final cost ends up much higher than the client could have anticipated, especially when the original online legal document was given away for free or at a nominal cost.

These kinds of business models may not rise to the level of bait & switch, however they may be found to constitute misleading and deceptive conduct.

In our submission, clients appear to be lead to believe that in the majority of cases they will be able to use the standard online documents without the need to engage a law firm to assist, when in actual fact this is not the case.

What are the benefits of purchasing legal documents directly from Blue Ocean Law Group?

When you purchase online legal documents directly from us, we have every incentive to ensure the quality of the online legal documents provided are as high as possible, and that you have all your questions answered.

List of Benefits:

✅ Our law firm already has a copy of your online responses so we can assist quickly and cost effectively.

✅ 1-stop shop. There is no need to wade through a directory of different law firms each time.

✅ Professional Indemnity Insurance (when you engage us for legal advice);

✅ Higher quality automatically tailored legal documents using Embedded Lawyer-Logic;

✅ Deal directly with a law firm, no need for middlemen;

✅ No referral fees built into the business model;

✅ Lower overall legal costs;

✅ Legal document delivered directly from our .law web domain so you know we created the legal document;

✅ Legal Professional Privilege; and

✅ Enhanced Confidentiality.

✅ Blue Ocean Law Group are the only Australian law firm providing you with the option to create Legal Documents online using ⚖️ [Self-Service] and/or [Lawyer-Assisted].

Credits:

This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

What is a Free Legal Health Check and why is this the best place to start?

What is a Free Legal Health Check? ✅

Our Legal Health Check is a process that helps you identify + prioritise your individual + business (if relevant) legal needs.

How does it work?

1️⃣ Complete our Intelligent Questionnaire:

You will be asked to provide information about your personal and/or business circumstances;

2️⃣ Automated Report:

The process uses inbuilt Embedded Lawyer-Logic™ to help you identify key legal risks + concerns and prioritise solutions.

A customised (jargon-free) report is generated in plain english with actionable recommendations.

3️⃣ Deliver Solutions:

You can then consider the information in your own time, and when convenient, select the most appropriate self-service legal documents from our online 24/7 portal or reach out to our legal team to discuss your options in more detail.

What does it cover?

🧩 Estate planning;

🧩 Marriage and de facto relationships;

🧩 Tax structuring;

🧩 Dispute avoidance/resolution;

🧩 Investment properties;

🧩 Business sale/purchase;

🧩 Business financing;

🧩 Co-ownership arrangements;

🧩 Managing staff;

🧩 Commercial terms;

🧩 Websites and intellectual property;

🧩 Regulatory compliance.

Why go through this process?

This is an amazing way to quickly + proactively identify legal risks + opportunities to get your legal affairs in order!

Achieve Zen-like “peace of mind” knowing your legal affairs are in order

Our Buccaneer Package is designed for individuals + includes our constantly expanding library of [Self-Service] personal legal documents.

It is compelling value with pricing at less than $1 per day which entitles you to access heavily discounted [members only] prices.

You could save thousands $$$ on your legal bills!

Our Yachtsman Package designed for business owners includes our constantly expanding library of [Self-Service] personal + business legal documents.

It is compelling value with pricing at circa $3.50 per day [equivalent to the price of a cup of tea or coffee!] which entitles you to access heavily discounted [members only] prices.

You could save thousands $$$ on your personal + business legal spend!

Credits:

This FAQ was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

More than 1000+ Australian Lawyers use Embedded Lawyer-Logic. How does it work?

More than 1000+ Australian lawyers use this industry leading automated legal document generation solution. It uses Embedded Lawyer-Logic™ designed by leading lawyers in their respective fields.

Step 1️⃣: Information Gathering

Our intelligent online questionnaire adapts to your answers and only asks relevant questions.

Simply follow the guidance and enter the requested information about your matter.

Step 2️⃣: Document Assembly

The information is then sent to our back-end legal document generation engine, which follows a matrix of algorithms to make decisions about what should be in your legal document, just as an expert human lawyer would do.

The engine then draws from an enormous body of content to assemble a top-tier quality legal document that’s tailored to your situation + requirements.

Our Embedded Lawyer-Logic™ technology includes numerous quality control checks + automatic error-correction, massively reducing the risk of human error.

Step 3️⃣: Document Delivery

The finished document is then emailed to you in PDF format, ready to print and sign.

Optional: Lawyer Review/Assistance

Your answers to the online questionnaire and a copy of the finished document in both Word + PDF formats are automatically forwarded to our legal team.

If we notice anything out of-the-ordinary we will contact you to discuss.

If you are a subscribed member or opt for paid Lawyer-Assistance, we will use the allocated time to assist to clarify and resolve any questions you may have.

Optional: Full Service

If your matter is complex, high risk or you have never been involved in legal matters before, we highly recommend you opt for our Full Service.

Our legal team will contact you and assist you throughout the entire process.

If you are a subscribed member the cost for the time spent by our legal team to assist you is heavily discounted.

Credits:

This FAQ was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

When should I reach out to speak to your legal team?

Our [Self-Service] legal documents are designed to be completed "without the intervention of a lawyer".

This approach will be appropriate for the majority of routine legal matters, where you are experienced and have learnt what needs to be considered and have gained experience in using our 24/7 online document portal to generate your legal documents instantly.

Some routine matters maybe totally new to you (meaning that you will have questions and we recommend you select our [Lawyer-Assisted] service).

Other matters maybe unusually complex, or of such high-value or risk that involving our legal team is the prudent course to take.

For these matters we recommend you select our [Full Service] option.

Credits:

This FAQ was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Is the Legal Documents Portal Secure? Does it use encryption to protect my personal information?

Our website + back-end system use the best possible web-based security available.

It was once said:

It would take the combined processing power of every computer in the world thousands of years to crack 4096-bit encryption.

In a more general context (outside of encrypted secure website traffic/data) it has also been said:

Data with 4096-bit encryption (only protected by a password) could still be compromised within seconds.
How? Human error.
Easy pass-phrase, written down password, re-used password... etc. basically, always be on the lookout for the weakest link.
Trust the technology, but never trust the weak link - the user!

Credits:

This FAQ was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

What extras does an upgrade to Lawyer-Assisted Service include?

Your upgrade to our [Lawyer-Assisted] Service includes …

⚖️ Professional Indemnity (Limited Liability) by a scheme approved under Professional Standards Legislation;

⚖️ Access to Professional Fee Funding* / Disbursement Fee Funding / Family Law Funding (subject to approval by QuickFee our external legal finance provider);

✅ Allocated Time included to understand your circumstances + objectives, answer your queries + provide legal advice & make recommendations regarding alternative/additional options; and

✅ Create your standardised Legal Document based on your instructions.

Plus [+] Where Appropriate (at no additional charge)

⚖️ Use of proprietary fonts to maximise fraud prevention;

⚖️ Use of our Law Firm Letterhead;

➲  Send your Legal Document for electronic signature/s using AdobeSign; and/or

🔒 Application of TraxPrint Legal Document Security Technology for Fraud + Litigation Prevention.

* More Information about Professional Fee Funding:

Our firm has partnered with QuickFee and Splitit to provide you with an interest free payment option. While we remain your service provider, the payment method is provided by QuickFee, a specialist payments provider for professional firms.

Credits:

This FAQ was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Why does Blue Ocean Law Group℠ use a *.law website domain?

What is a *.law web domain?

⚖️ *.law is a top-level-domain (TLD) that aims to:

Promote trust in the professional legal community by creating a:

✅ Verified;

✅ Exclusive; and

✅ Reserved online space in which only accredited lawyers and law firms can establish a comprehensive digital brand.

✅ Website users can have confidence they are dealing with an authorised and licensed lawyer/law firm.

✅ *.law offers effective branding to those in the legal community, with the ability to secure a domain name that clearly communicates who you are + the legal resources you provide.

All about *.law domain names

Source: join.law - Why *.law?

If I create a legal document for my client on your law firm’s website am I giving legal advice or am I a "mere scribe"?

Is your role that of a mere scribe?

If your role is merely that of a "scribe or scrivener" as outlined below it is unlikely you would be deemed to be providing legal advice or engaging in the practice of law.

Caution: Some Online Legal Documents have evolved!

Unfortunately this is not as easy as it once was … when online legal document templates were all static "fill in the blanks" one-size-fits-all templates.

Increasingly, the capabilities + complexities of legal document automation have evolved to cater to an ever widening range of facts and conditions.

Using the complex design + incorporation of what we call Embedded-Lawyer Logic it is no longer possible to avoid the automated tailoring of the online legal document to suit the client's circumstances + legal needs.

They are designed to produce a quality bespoke legal document just like a lawyer does.

The use of Embedded-Lawyer-Logic™ in the online process:

✅ Is now very similar to a client being interviewed by a lawyer;

✅ It drills down to ask the same questions and provide the same options a highly experienced + competent lawyer is required to do.

As a result the draft legal document created now has the potential to vary significantly based on the responses provided by the client.

We have now progressed to the point that the new normal online process is designed to cause your role to fall outside of the role of a "scribe or scrivener" alluded to below.

In the leading case on this issue Legal Practice Board v Computer Accounting and Tax Pty Ltd [2007] WASC 184; 35 WAR 59 (Simmonds J) noted at para. [152] that Brinsden J in Barristers Board v Palm Management Pty Ltd [1984] WAR 101 referred to Re Matthews (1938) 79 P 2d 535, apparently with approval, as follows at para. [108]*:

The court went on to say that where an instrument is to be shaped from a mass of facts and conditions, the legal effect of which must be carefully determined by a mind trained in the existing law in order to ensure a specific result and to guard against others, more than the knowledge of the layman is required and a charge for such services brings it definitely within the term 'practice of the law' [emphasis added].

How to limit your role to that of a "scribe or scrivener"?

Therefore, we strongly recommend that you advise your client to either:

✅ Create the draft legal document themselves + ensure independent legal advice is sought from our legal team prior to negotiation and execution; or

✅ Instruct you to create the legal documents using our Lawyer-Assisted option.

Doing this ensures your role is clearly limited to that of a "scribe or scrivener".

Our legal team will then take the responsibility for reviewing your client's individual circumstances together with the draft legal document in order to provide your client with the relevant legal advice, ensure your client understands their legal position and options, and to propose and make any required amendments to the legal document based on your client's instructions.

What is a "mere scribe or scrivener"?

In Legal Practice Board v Computer Accounting and Tax Pty Ltd [supra]*:

… the court held that work of the mere clerical kind, such as filling out of skeletal blanks or drawing instruments of generally recognised and stereotype forms effectuating the conveyance or encumbrance of property, such as a simple deed or mortgage not involving the determination of the legal effect of special facts and conditions, should be generally regarded as the legitimate right of any layman because it involves nothing more or less than the clerical operations of the now almost obsolete scrivener (emphasis added).
(The scrivener was eliminated in England by the 1804 Act.).

The view of the Institute of Chartered Accountants in Australia ... ^

Timely reminder

The 2007 case of the Legal Practice Board v. Computer Accounting and Tax Pty Ltd* serves as a timely reminder to members that there are legislative provisions in each state and territory which prohibit a person who is not a legal practitioner from engaging in legal practice.
This prohibition is mirrored in the Institute’s regulations relating to public practice (regulation 1207).
However, there are differences between the jurisdictions as to how the prohibition is framed.  

Even so, members who use the services of document providers are urged, as a minimum, to:
✅ Use only reputable document providers whose services are backed by competent legal practitioners;
✅ Ensure that they abide by the terms and conditions of the document providers as to the use of the documents and their supply to clients; and
✅ Avoid redrafting of documents to suit the circumstances of individual clients, unless appropriate legal advice is obtained by the relevant parties.

Seek legal advice

The Institute believes that the recent WA case does not require any change to a member's legitimate use of this type of service in accordance with their terms and conditions.
However, if you have any concerns or queries about the use of document providers, you should seek legal advice.

Sources:

* Legal Practice Board v Computer Accounting and Tax Pty Ltd [2007] WASC 184;

^ Extracted from the article: Court case raises issues about preparation of legal documents.

Credits:

This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

How do I Verify the Authenticity of a TraxPrint Protected Legal Document?

You can use any of the following TraxPrint Document Verification Methods

1️⃣ Double-Click to Verify the Details of the Document

Note: You can find the TraxPrint QR Code on the bottom of the first, last or every page, depending upon the preference set by the author of the document.

✅ By way of example, Double-Click on the below sample TraxPrint QR Code within the PDF document:

➲ You will be taken to the TraxPrint.com website and a message similar to the following will appear:

2️⃣ Email to Verify the Contents of the Document

✅ Send an email with the PDF document attached to check@traxprint.com

❌ If there is no response the PDF document is not authentic.

➲ If the PDF document is authentic, you will receive (within approx. 2 minutes or less) a reply email with a Certificate of Authenticity and the Original PDF both attached.

3️⃣ Scan to Verify the Contents of the Document

✅ Download the free TraxPrint App from the iOS AppStore or Android GooglePlay

➲ Register + Sign-in to the App then ✅ Scan the TraxPrint QR Code to Verify.

4️⃣ Drag n' Drop to Verify the Contents of the Document

✅ Drag n' Drop the PDF Document File into the designated area.

➲ You will receive an instant response regarding the authenticity of the document.

💡 This feature is coming soon and will be available on a dedicated page on our website.

Credits:

This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

When you say I can create a Legal Document anywhere, do you mean even from my mobile phone, if necessary?

Yes, we have designed our Legal Documents Portal so that you can create a Legal Document from my mobile phone (if necessary)!

The below iPhone 12 screen shoots demonstrate what we mean by "^anywhere (even from your mobile phone, if necessary)".

iPhone 12: Portrait Mode
iPhone 12: Landscape Mode

Credits:

This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

Why use a "Special Purpose" Corporate Trustee to control your Family / Discretionary Trust?

Who can you appoint as a trustee of your Trust?

The trustee of your Family / Discretionary Trust may be:

⚖️ One or more individuals; or

⚖️ A "Special Purpose" Corporate Trustee.

What is a Corporate Trustee?

A Corporate Trustee is normally a private (i.e. proprietary limited) "Special Purpose" company incorporated with ASIC for the sole purpose of acting as the trustee of your trust.

What is meant by "Special Purpose"?

A trustee company, or in other words a Corporate Trustee is:

✅ Normally a private non-trading (that is, it does not deal with the public at large, so it is therefore not exposed to the many possible liabilities which arise when a business trades with the public) company;

✅ Which is specially incorporated for the purpose of being appointed to act as the sole trustee of a trust.

Why use a Corporate Trustee?

Advantages

The advantages of using a Corporate Trustee include:

✅ Limited Liability:

A Corporate Trustee is a separate legal entity and has the benefit of limited liability.

This means that the individual directors will not be held personally liable (excluding exceptional circumstances such as an instance of fraud).

✅ Separation of Assets:

Using a Corporate Trustee automatically ensures that trust assets are kept separate from personal assets as they are held in the company name.

To further strengthen this advantage, it is generally recommended that being the trustee of the trust is the sole purpose of the Corporate Trustee.

If the company also runs a business, such that it is trading with the public, confusion can be created regarding whether it is holding assets in its own name or on behalf of the trust.

✅ Reduction of Land Tax:

The higher the value of the property or properties held in an individual's name within the same state or territory, the more potential land tax is payable.

If each property is instead held in a separate Family / Discretionary Trust with a different Corporate Trustee, you can obtain the benefit of the land tax-free threshold for each property, and if land tax is payable, the lowest possible land tax rate would be applied.

 Simpler Administration:

No additional income tax return will be required for the Corporate Trustee, as it will qualify for non-active status with the ATO.

If there is a need in the future to change the control of the trust, having a Corporate Trustee will save you a lot of time, effort and cost.

In order to change control of the trust, it becomes a simple matter of preparing a share transfer form and/or a resolution to appoint or resign a director with the appropriate form being lodged with ASIC.

For example: Changing control of a trust which owns real estate

When a trust purchases a property, the property is held in the name of each trustee that is listed on the certificate of title "as trustee/trustees" rather than the name of the trust itself.

If individuals are named as trustees, then when a trustee changes, a lawyer is required to be retained to effect the required updates to the certificate/s of title together with any associated mortgage documentation.

When there is a Corporate Trustee all that needs to be done is to prepare a share transfer form and/or a resolution to appoint or resign a director with the appropriate form being lodged with ASIC.

These changes can be made easily and at a nominal cost.  

Even though the shareholders and directors of the trustee company may change, the trustee company will still remain as the sole trustee of the trust.

This means that no change is required to the certificate of title/s or to any associated mortgage documentation.

When might the control of the trust need to be changed?  

Almost all trusts (which in Australia generally have a maximum term of 80 years: refer to this FAQ for more information) will need to effect a change of control of the trust at some point in time.

Examples of when there is a need to change control of the trust include:

⚖️ Your children take over your trust when you pass away;

⚖️ You change accountants/lawyers who have been acting as a professional trustee as you're not happy with their service;

⚖️ You change accountants/lawyers who have been acting as a professional trustee as you relocate within Australia or they close down or sell their business;

⚖️ You may need to change trustee if you move overseas;

⚖️ The death of any individual trustee (See below discussion: a Corporate Trustee does not die);

⚖️ Your marriage or relationship comes to an end.

✅ Simple succession: A corporate trustee does not cease upon the death of one of its directors.

Whereas if an individual trustee dies (in particular if they are the only remaining trustee) there will be legal costs + complications regarding the continued administration of the trust.

Disadvantages

The main disadvantage involved in using a Corporate Trustee is the up-front + ongoing annual costs.

Incorporating a company can be done online, quickly and cost effectively using a service such as eCompanies (circa $550).

All companies have ongoing annual ASIC fees.

If the cost of incorporating and maintaining a "Special Purpose" Corporate Trustee is a prohibitive factor in deciding whether or not to form your family trust then you need to seriously consider whether it is worthwhile to form the trust in the first place.

Credits:

This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

How do Drag-Along + Tag-Along Rights work in a Shareholders' Agreement?

What are Tag-Along Rights?

Tag-along rights give non-selling securityholders the right to sell alongside the selling securityholder (ie, the selling securityholder can't complete its sale unless the proposed purchaser also offers to buy out the tagging securityholders).

What are Drag-Along Rights?

Drag-along rights give the selling securityholder the right to force the non-selling securityholders to also sell to the proposed purchaser.  

This is particularly important where the proposed purchaser will only complete if it gets 100% ownership.

Check you Shareholders' / Unitholders' Agreement

Depending upon the terms of your Shareholders' / Unitholders' Agreement, generally both Tag-along and/or Drag-along rights apply in the event of a proposed sale of shares by a securityholder.

Generally tag/drag rights will only apply:

✅ After the transfer pre-emption provisions have been followed;

✅ If the remaining securityholders do not offer to purchase all of the sale securities;

✅ If the seller then elects to sell all of the sale securities to a bona fide third party; and

✅ If the size of the proposed sale exceeds specified thresholds.

What if there is no Shareholders' / Unitholders' Agreement?

If there is no Shareholders' / Unitholders' Agreement, then the above tag-along / drag-along rights will not be able to be exercised.

Once there are multiple Shareholders / Unitholders it is often too late to get them all to unanimously agree to enter upon agreed terms of a Shareholders' / Unitholders' Agreement.

The ideal time to establish these important rights is in a Shareholders' / Unitholders' Agreement entered at establishment.

That is, before more than 1 Shareholders / Unitholders subscribe for securities.

If you would like the tag/drag rights to apply in the above and/or any other circumstances, we recommend you obtain legal advice at the time the Shareholders' / Unitholders' Agreement is being drafted.

Typical Thresholds Triggering Tag-along rights

Tag-along rights will apply if a proposed sale would result in a third party acquiring a certain level of voting power or more.  

Please note that, since the threshold is linked to voting power, a choice of 100% can make sense where the intention is to permit the holders of non-voting securities to tag along in an exit by the holders of all voting securities.  

Voting power threshold for tag-along rights is typically 80-90%.

This is a percentage of the total securityholder voting rights.

The tag-along rights will only apply if the sale would result in a third party acquiring this level of voting power or more.

Typical Thresholds Triggering Drag-along rights

Voting power threshold for drag-along rights is typically 80-90%:

This is a percentage of the total securityholder voting rights.

The drag-along rights will only apply if the sale securities carry in total this level of voting power or more.

Credits:

This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

What is Key Person Insurance or Buy/Sell Insurance?

What is Key Person Insurance or Buy/Sell Insurance?

Key Person Insurance or Buy/Sell Insurance (or in the case of a Partnership Agreement, Partnership Buyout Insurance) provides the funds needed for the remaining owners of a business/trust to:

✅ Takeover or purchase the exiting owners share; and/or

✅ Have access to the required funds to replace the Key Person or recover from the loss of the Key Person from the business …

In the event of their death, total and permanent disability, or severe illness/trauma such as heart attack, stroke, cancer and/or paraplegia.

This type of insurance cover helps the business continue running with minimal disruption.

For the departing person or their estate, this insurance assists them to receive the agreed (normally market value) of their shareholding in return for transferring their business share to the remaining owners of the business/trust, or terminating their Employment / Independent Contractor Agreement.

Best Practice in a Shareholders' or Unitholders' Agreement

The Best practice within a Shareholders' or Unitholders' Agreement is to include terms that ensure life, permanent disability + trauma insurance is taken out in relation to all of the Securityholders.

The company or unit trust pays the annual insurance premiums.

Then, if a Securityholder is required to offer its securities for sale to the remaining Securityholders as a result of death, permanent disability + trauma sufficient to be covered by the insurance policy, the proceeds of the insurance policy are used to assist the remaining Securityholders in buying those securities.

The directors or trustee/s determine the amounts for the insurance policy from time to time, with the consent of Key (that is the majority or controlling) Securityholders.

Death or Incapacity of a Securityholder

In our Shareholders' or Unitholders' Agreement, by default, the death or incapacity of a Securityholder will not trigger a right for the other parties to buy out that Securityholder.

If you choose to add our Best Practice Buy/Sell Insurance provisions to the  Shareholders' or Unitholders' Agreement, then death/incapacity will be added as a trigger event requiring the affected party to offer its securities for sale to the remaining Securityholders.

Professional Tax/Accounting/Legal Advice is always Recommended

The potential for future ownership changes, and triggered tax implications {including income tax, capital gains tax, and fringe benefits tax) should be considered before final arrangements are made.

Credits:

This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.