Legal work for expanding a solo director company in Australia
Updated: 2 December 2019
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 recommended 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 to your company.
After that, you'll need to record the changes with ASIC within 28 days to avoid ASIC penalties.
While ASIC does not collect the paperwork when you make the change, you may be audited by ASIC 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 that you have good company records in place.
Below is a list of the paperwork you'll need to add an extra director.
Director consent - the new comers consent to be a director. You'll need this consent from each director that you appoint; and
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.
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.
Share certificate - a certificate for the shares that have been issued; and
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
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?
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.
And who are the founders?
They are the original (and also recently added) directors that are making business decisions and working on the business day-to-day.
The founder’s agreement covers duties, work location, financial contributions, remuneration, disputes and more.
Here’s a guide for how to use a founder’s agreement.
Also, 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 every success in all your ventures!