Legal work for expanding a solo director company in Australia

By Vivian Michael | Company

Knowing the legal work involved for expanding your solo director company helps you manage legal risk. 

I'll explain the legals you'll need to expand and why, in the order of mandatory to best practice to help you manage your resources. 

In a hurry? Jump ahead. 

First, we’ll look at the ASIC company structure changes because this legal work is mandatory. 

Company structure changes (mandatory)

Adding new directors

You'll need paperwork to adjust the company structure to add one or more directors. 

After that, record the changes with ASIC within 28 days to avoid ASIC penalties.

While ASIC does not collect the paperwork,  you may be audited so you should keep the paperwork somewhere safe. 

And, aside from audits, if you do decide to sell your company, your buyer will want to see good company records in place. 

Below is a list of the paperwork you'll need to add an extra director.  

  1. Director consent - the new comers consent to be a director. You'll need this consent from each director that you appoint; and 
  2. Office holder register - details of all registered directors. You'll need to update the register to add the new director.

Below is the information that you'll need to collect  to add the new director. 

Allocating shares

Now,  while it's not mandatory for directors to be shareholders, you may wish to  incentivise your new director by allocating shares to them. 

Below is the paperwork you'll need to allocate shares to a new shareholder. 

  1. Share certificate - a certificate for the shares that have been issued; amd
  2. Shareholder register - lists the details of all shareholders. You'll need to record the new shareholder details on this register.

Iv’e written about what to consider when allocating shares here. 

And more specifically about allocating shares to directors here. 

After adding directors and allocating shares, we can then take a look at the agreements you will need. 

Shareholder Agreement (best practice)

The Shareholder Agreement sets out the rights and responsibilities of shareholders. 

While not mandatory, its best practice to have a shareholder agreement

Why?

Because it sets out the rights and responsibilities of shareholders. 

Also, you can deal with common situations like adding and removing shareholders, share transfers to other shareholders and disputes.

You can read about what goes into a shareholder agreement in this guide.  

So, shareholder agreement = shareholder rights and responsibilities

So if your directors are also shareholders, do you need a founder’s agreement if you have a shareholder’s agreement? 

Yes. 

While both agreements may overlap on certain topics, each has a distinct purpose and function. 

Next, I'll discuss the founders agreement.

Founders Agreement (best practice)

The founders agreement sets out the rights and responsibilities of the founders. 

Who are the founders? They are the original (and recently added) directors that are making business decisions and working on the business day-to-day. 

The founder’s agreement covers duties, work location, remuneration, disputes and more. 

Here’s a guide for how to use a founder’s agreement

Now, the founders’ agreement is not to be confused with an employee agreement. 

While founders are responsible for bringing the key business ideas to life and making decisions, employees are completing the leg work. 

Also, unlike a founder an employee may have very specific job duties like graphic design, developer, sales person. 

I’ve also covered the founder’s versus employment agreements here. 

Hope this helps. 

I wish you success in all your ventures!


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About the Author

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to make quality business legal services accessible to entrepreneurs launching in Australia that would otherwise DIY, rely on legacy contracts or go without.

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