Growing, selling and what comes next

Bringing in co-owners

The moment there is more than one shareholder, a shareholders agreement becomes the most important document in the business. The constitution handles the mechanics of the company; the shareholders agreement handles the relationship: who decides what, what requires unanimity, how new shares are issued, what happens if someone wants out, dies, or stops contributing, how a deadlock is broken, and how a third-party offer is handled (drag-along and tag-along).

Vesting matters as much as the agreement itself. Equity that is fully allocated on day one to a person who leaves in month four is the classic structural defect, and it is very difficult to unwind after the fact.

Incentivising the team

Equity incentives in Australia usually take one of three shapes: an employee share scheme or option plan (with the concessional tax rules for eligible start-ups), a phantom or shadow equity plan that pays cash on a liquidity event without issuing shares, or a straightforward cash bonus tied to milestones. Each has different tax, dilution and administrative consequences — the right one depends on whether you want the recipient on the cap table at all.

Raising capital

Most early Australian raises use either a convertible instrument (a SAFE or convertible note) or a priced round with a subscription agreement and an updated shareholders agreement. Both are governed by the fundraising provisions of the Corporations Act, which restrict who you can offer securities to without a disclosure document — the sophisticated investor and small-scale offering exemptions are the ones most commonly relied on. Getting the exemption wrong is a compliance problem you cannot easily fix later. See raising capital.

Share sale or asset sale

• Share sale. The buyer acquires the entity and everything in it — including its history, its liabilities and its contracts (subject to change-of-control clauses). Sellers usually prefer this; buyers price the risk through warranties, indemnities and sometimes escrow.
• Asset sale. The buyer takes selected assets — goodwill, plant, IP, contracts by assignment or novation — and leaves the entity behind. Cleaner for the buyer, more administrative work, and employees must be offered new employment with entitlement transfer addressed.

The choice drives tax treatment, third-party consents, and how much of the price is at risk after completion. It should be settled at heads-of-agreement stage, not during drafting.