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Division 7A Loans: What Australian Business Owners Need to Know

Division 7A Loans: What Australian Business Owners Need to Know

by | Jun 30, 2025 | Business Structures, Contracts, Law for Online Business, Legal

Division 7A Loans: What Australian Business Owners Need to Know

Division 7A loans can easily trip up small business owners in Australia, especially when personal expenses blur into business transactions. Understanding these rules is critical to avoid unintended tax consequences and ensuring tax compliance for business owners.

This article breaks down what Division 7A is, why it matters, and how to stay compliant so you protect both your business and your financial future.

What Is Division 7A?

Division 7A is a section of the Income Tax Assessment Act 1936 that prevents private companies from distributing profits to shareholders (or their associates) as tax-free payments. If your company provides funds or benefits to shareholders in a way that looks like income, but isn’t reported as such, it could be treated as an unfranked dividend and taxed at your marginal rate.

Division 7A applies even if:

  • You operate via a trust or partnership
  • The payment is made to a related entity (e.g. a family trust)
  • The transaction is labelled something else but ultimately benefits a shareholder or associate

What the ATO Considers a ‘Loan’

Under Division 7A, a ‘loan’ can include:

  • Direct payments to a shareholder or associate
  • Use of company credit for personal expenses from business account
  • Repayment of personal debts using company funds
  • Any financial benefit or arrangement that creates an expectation of repayment

These are classified as loans to shareholders under Division 7A.

    Real-World Examples of Division 7A Loans

    Some common scenarios that may trigger Division 7A include:

    • Paying personal expenses like school fees, groceries, or mortgage from the company account
    • Using company funds to pay off a personal credit card

       

    • Your business owns an asset (like a boat or property), and you use it personally

       

    • Funds flow from your company to a trust and then to you

       

    These examples often result in EOFY loans that need to be documented and structured to avoid being taxed.

    Why it Matters: What Happens If You Don’t Comply?

    If a Division 7A loan isn’t properly documented and structured:

    • It will be treated as a Division 7A deemed dividend
    • You’ll pay tax on the full amount at your personal income tax rate
    • You may trigger ATO scrutiny and penalties

       

    And no, repaying the loan the day before June 30 and withdrawing the funds again on July 1 doesn’t bypass the rules. The ATO has flagged this tactic and treats it as non-compliant under ATO loan rules.

    How to Stay Compliant with Division 7A

    To avoid being taxed on what the ATO considers a dividend, you need a Complying Division 7A Loan Agreement. Here’s what it must include:

    Written Agreement

    The loan must be documented in writing by the time the company’s tax return is due (including extensions). A properly structured Division 7A loan agreement is essential to meet ATO Division 7A rules.

     

    Specified Loan Terms

    • Up to 7 years for unsecured loans
    • Up to 25 years for secured loans (must be backed by a mortgage over real property)

     

    Minimum Yearly Repayments

    Each year, you must make minimum repayments, including interest at the benchmark interest rate (ATO) published for that financial year.

    📌 The ATO has a helpful Division 7A Loan Calculator to help calculate your repayments.

    Common Misconceptions

    Misconception #1: You can set your own interest rate.
    Truth: You must use at least the ATO’s benchmark interest rate for that financial year.

    Misconception #2: Only shareholders are affected.
    Truth: Division 7A also applies to associates, such as family members or trusts controlled by shareholders.

    Misconception #3: If I repay and redraw a loan around EOFY, it doesn’t get caught by the rules.
    Truth: The ATO views this as an avoidance strategy and still treats it as a Division 7A loan.

    Final Checks: Do You Have a Division 7A Loan? 

    Not sure? Before finalising your EOFY accounts:

    • Check with your accountant or bookkeeper
    • Review whether you’ve paid personal expenses from your business account
    • Ensure proper documentation is in place

    Key Takeaways for Australian Small Business Owners

    • Keep personal and business finances separate whenever possible
    • If funds are borrowed, ensure a written Division 7A agreement is in place
    • Make repayments on time and at the correct rate
    • Speak with your accountant to stay compliant with ATO Division 7A rules and broader ATO loan rules

    Want peace of mind? Our legal team can help you review or draft Division 7A agreements tailored to your business.

    📅 Book a free consult to stay compliant and avoid costly surprises

    Related Articles

    The Right Business Structure to Protect Your Assets
    What Are Shareholder Agreements and Why Are They Important?
    Legally Binding Contracts: What You Need To Know

    Division 7A Loans: What Australian Business Owners Need to Know

    Revenue Share Agreements: Legal Essentials for Online Business in Australia

    by | May 29, 2025 | Business Structures, Contracts, Law for Online Business, Legal

    Revenue Share Agreements: Legal Essentials for Online Business in Australia

    Revenue Share Agreements: Legal Essentials for Online Business in Australia

    Thinking about a revenue share deal? Here’s what you need to know before saying yes.

    Revenue sharing can be a great model for collaboration in online business. But without the right legal structure, it can also lead to confusion, disputes and in some cases, costly fallout.

    At Onyx Legal, we regularly advise Australian coaches, consultants, agencies, and service providers on how to protect themselves in revenue share agreements. In this guide, we’ll walk you through the legal side of these deals so you can make informed, confident decisions.

    What Is a Revenue Share Agreement?

    A revenue share agreement is a contract where two or more parties agree to split the revenue generated from a product, service, or business activity. It’s commonly used in online collaborations where one party delivers the service while the other contributes marketing, leads, or tech infrastructure.

    Example: A Brisbane-based business coach partners with a Sydney digital agency. The coach delivers the program, the agency assists in increasing sales by handling the funnel, and they split the revenue received from those additional sales 60/40.

    This model is attractive for entrepreneurs who want to grow quickly without upfront costs. But it requires clarity to work well. Revenue share deals are often informal at first, which makes legal documentation even more important.

    Without legal grounding, it’s easy to fall into mismatched expectations leading to misunderstandings, late payments, or legal risk if a deal goes sour.

    Key Legal Considerations Before You Sign (Australia Context)

    Before entering into a revenue share arrangement, it’s essential to get clarity on:

    1. Roles and Responsibilities

    Who is doing what? Spell this out in detail to avoid mismatched expectations

    • Who manages delivery?
    • Who is in charge of customer service, refunds, or disputes?
    • What happens if there’s a problem with delivery or fulfillment?

    2. What Counts as Revenue?

    You must define:

    • Is GST included in revenue?
    • Are discounts or refunds deducted before the split?
    • Are upsells and cross-sells included?

    These questions must be settled before launching your offer.

    3. When & How Will You Get Paid?

    Set a clear schedule for calculating and distributing revenue shares (e.g., monthly, after reconciliation).

    • Will reports be provided?
    • Who handles reconciliation of payments?
    • What platform is used for tracking sales and calculating revenue?

    4. Who Owns What?

    Protect your IP. Define what each party owns, especially content, customer data, and brand assets.

    • If the partnership ends, who owns the email list or the funnel?
    • Who retains rights to the original course, brand name, or materials?

    5. Exit & Dispute Clauses

    What happens if the relationship ends or someone doesn’t deliver? Build in:

    • A notice period for ending the agreement
    • Mediation or dispute resolution clauses (note: mediation is common in Australia before litigation)
    • A plan for what happens to shared assets and active clients

    Pro Tip: Download our Revenue Share Questionnaire to identify your legal blind spots before entering an agreement.

    Revenue Share vs. Joint Venture: What’s the Difference?

    While both models involve collaboration, a partnership agreement or a shareholder agreement typically involves a new business entity with shared ownership. A revenue share deal, on the other hand, like a joint venture does not create a separate entity, it’s simply a contractual agreement between parties.

    Companies and Partnerships often involve:

    • Shared liabilities and obligations under Australian law
    • More formal structures and tax implications

    Revenue share agreements are often easier to dissolve and more agile and rely upon contractual legal protection, which is why they need to be well-structured.

    If you’re unsure which model is best, speak to a lawyer early. The wrong structure can have tax or liability implications including under Australian consumer law.

    Why Templates Aren’t Enough (Especially in Australia)

    We’ve seen many businesses rely on generic templates or verbal agreements and end up in disputes.

    Here’s why templates usually fall short:

    • They don’t reflect your unique revenue model or industry nuances
    • They may use US-based legal terms that don’t apply under Australian law
    • They often lack clauses around IP, GST, dispute resolution, or ASIC compliance

    A customised agreement not only protects your interests, it also signals professionalism and builds trust with your partner.

    Example: A Costly Misunderstanding

    A Gold Coast based digital agency entered a 50/50 revenue share deal with a clairvoyant promoting personal horoscopes. The deal was sealed verbally. Nothing was put in writing.

    The digital agency invested in re-building the website and portal for customer communications and distribution of the horoscopes on the basis that they would receive 50% of the sales.

    Before launch the clairvoyant decided the website didn’t reflect what she wanted and she did not want to go ahead with the launch.

    • The digital agency expected to be paid for their time for the work completed.
    • The clairvoyant insisted that payment was only due from sales and that she retained the right to refuse to go ahead if she wasn’t comfortable and wanted to be compensated for the time she had lost getting the website to launch.
    • With nothing in writing the digital agency could do nothing but retain the work they had done, and pursue payment.

    The relationship broke down. The digital agency came to us chasing payment but the cost of doing that was likely to exceed the value of time they had already invested in the website build. Both parties walked away frustrated, no one got paid.

    The lesson: Legal clarity upfront could’ve included a clause on dispute resolution and prevented the fallout.

     

    Final Thoughts: Protect the Relationship and the Revenue

    Revenue share deals can be a powerful way to grow, when they’re built on mutual understanding and solid legal foundations.

    If you’re considering a partnership or collaboration in Australia, don’t wait until things go wrong. Get clear from the start.

    How can Onyx Legal help you?

    Book a consultation with our team to review your draft or explore your options. Schedule your legal consultation

    Make an Appointment

    Download Our Free Revenue Share Questionnaire

    Avoid legal blind spots and enter your next deal with confidence. Get the questionnaire now.

    Related Articles

    Venture Agreements: What You Should Know
    Protecting Your IP in Online Programs
    How to Avoid Legal Risks in Strategic Partnerships

    What Are Shareholder Agreements and Why Are They Important?

    What Are Shareholder Agreements and Why Are They Important?

    by | Dec 7, 2022 | Business Structures, Buying or Selling a Business, Contracts, Dispute Resolution, Law for Online Business, Legal

    What Are Shareholder Agreements and Why Are They Important?

    What Are Shareholder Agreements and Why Are They Important?

    As with all business relationships, it is important for all parties to understand their rights and responsibilities, contributions, and entitlements. 

    This is the same for the shareholders of a company.

    If you have the chance to think through how you want to structure the company, what you want for the business, and the future in case unexpected events (like a death or disability) occur, and document those expectations, you create a situation where dispute is unlikely. 

    Documenting these expectations in some form (usually a shareholder agreement) is important because even if there is a dispute, you will still be able to use the terms of the shareholder agreement to resolve it with the least amount of time, effort and fuss.

     

    Why Do You Need Shareholders Agreement?

     

    Clients spend considerable time and money with us to resolve disputes about what they are each entitled and not entitled to, how to exit or remove someone from the company, and what will happen to those shares, IF no shareholder agreement was ever entered into. 

    When people stop agreeing and there is no effective mechanism to rely on to resolve the disagreement, they can be stuck in a deadlock that can only be resolved by a court.

    A shareholder agreement can include a mechanism for dispute resolution that is quicker, easier and cheaper than court. Not to mention private. 

    Think about it. 

    If there are two shareholders who are also both directors (which is not an uncommon situation), then every decision about the company will have to be unanimous. It is rare for business partners to be on the same page 100% of the time, so situations will arise where the parties are deadlocked on a decision and there is no clear way forward. 

    A shareholder agreement can provide the way forward. 

    Without a shareholder agreement, court may be the only option. 

    Does it make sense to ‘save’ $5,000 now to lose $100,000, or your house, later?

    What Is The Difference Between a Shareholder Agreement, Partnership Agreement, and Joint Venture Agreement?

     

    There are many different types of business structures –

    1. Partnership

    If you are a sole trader and have decided to collaborate with another individual without setting up a company or trust, that formation is a partnership. Different sorts of entities can set up in partnership, but it tends to be most common between individuals, or their family trusts. 

    A partnership is not a separate legal entity, which means each partner is exposed to liabilities the partnership incurs. For example, if one partner commits fraud by stealing money from clients, whether the other partners know about it or not, the innocent partners may be required to repay the stolen money. The people who have suffered the loss don’t even have to pursue the defrauding partner first! 

    You would need a Partnership Agreement to clearly set out the rights and obligations of each partner, and how to exit or dissolve the partnership.

    2. Joint Venture

    If you wish to pool resources and share expertise with another person or entity, that formation is a joint venture. A joint venture is very similar to a partnership. It may also not be a separate legal entity by itself, but it does not have the disadvantage of liability for the actions of the other parties.

    You would need a Joint Venture Agreement to define each joint venture partner’s roles and responsibilities, and entitlements. 

    Sometimes, a successful joint venture can lead to incorporation, or be established as a company from the start.

    3. Company

    A company is an incorporated entity which is separate to the people behind it (shareholders and directors). The most common structure for a company is a proprietary limited company, which means each shareholder is only liable up to the amount unpaid on their shares.

    Here is the typical structure of a company:

     

    Company

    TitleRole
    ShareholderOwner
    DirectorLegal liability + strategy
    WorkerDaily operations

    In a company, the director is legally responsible for the company and its strategic direction, the people who work in the business are responsible for daily operations, and the shareholders own the company. 

    Even with legal responsibility, there are some decisions a director or board of directors cannot make without approval of the shareholders. Some powers are reserved to the shareholders (eg. the power to replace directors) even though they rarely have any involvement in the day-to-day business activities. 

    It is important to understand what ‘hat’ you are wearing in a small business and try and focus on the responsibilities of that role only, rather than trying to be everything all of the time. 

    As an owner of the business, you should be interested in the finances and the risks the business is taking and feel confident the board has it managed. 

    As a director, you should feel confident you understand your legal liability, and that the company is operating within the kind of risk tolerance appropriate to your industry, and you have a plan for where the business is headed.

    Workers need to get the jobs done.

    As an aside – 

    What is the difference between a ‘board’ and a ‘director’ or ‘the directors’? 

    Nothing. 

    The ‘board’ is just the collective name for the directors working together. In a shareholder agreement, even if there is only one director at the time it is initially signed, the document will usually refer to the board, rather than a director alone to avoid having to make changes once another director is appointed. 

    Whether your company has a sole director or a board, they each are responsible for making the same decisions and all members are legally responsible for the company.

    What Is In a Shareholder Agreement?

     

    As with all business relationships, it is important for all parties to understand the proposed arrangement, their contributions, entitlements, and rights and responsibilities. 

    Essentially, a shareholder agreement is more specific than a constitution and can cover a broader range of topics such as:

    • the business activity to be carried out
    • what each shareholder owns
    • whether, and if so, how new shareholders can become involved
    • what rights shareholders have in appointing directors
    • whether directors can act in the interests of their appointing shareholder
    • dealing with shareholder loans
    • outlining specific requirements for business operations, eg. business plans and budgets
    • when distributions can be made
    • how shares can be transferred
    • valuing the company
    • what happens if a director or shareholder exits
    • what happens if a director or shareholder does something wrong
    • rights if a buyer comes along
    • what happens to assets and intellectual property if the company is wound up
    • dispute resolution

    How Do You Write a Shareholders Agreement?

     

    A shareholder agreement needs to set out important matters relating to the shareholders including how they make decisions, their entitlement to dividends, and how they can exit the company or vary their interest in the company. 

    Other important factors include bad leaver provisions, restraint provisions and funding provisions.

    Consider a scenario where you no longer wish to collaborate with the other shareholder (say, if they have acted recklessly or even fraudulently) and you want to either exit the company or remove the other person from the company, how do you do that? We have seen many situations where the lack of a Shareholders Agreement (or an effective mechanism within the Shareholders Agreement) caused stress and detriment to the shareholders as well as the company which may have to cease operations

    Who writes a shareholder agreement?

    We strongly recommend you go to a lawyer to help you draft your shareholders agreement.

    This is a document that needs to be tailored to your situation and is not a standard form document like the company constitution which can usually be prepared by accountants when setting up the company.

    Is a Shareholders Agreement a Contract?

    Yes. It is a contract between the company and the shareholders, as well as between each shareholder. 

    It is possible, and common, to set different rights and obligations for each shareholder. For example, for a shareholder who has the knowledge and expertise to run the business or steer it in the right direction, it may be good for them to have the power to vote and make decisions for the company. On the other hand, if you have a shareholder who is an investor shareholder and purely contributes funds to the company, you may want to restrict their control over the company by giving them no voting power and only entitlement to dividends.

    Does a Shareholder Agreement Need to be Signed?

    Signatures are often the easiest way to prove that someone has had the opportunity to read and agree to the terms of a document. 

    Shareholder agreements can be signed, or a resolution (also in writing) passed unanimously by all shareholders at the time, can be passed to prove agreement and approval of the terms of the shareholder agreement. This requires a poll of shareholders. 

    Every shareholder, and the company, sign the shareholder agreement. If it is a resolution, then it is not passed without the unanimous approval of every shareholder.  

    Is a Shareholder Agreement Legally Binding?

    Yes, provided that it is either signed by the company and each shareholder, or adopted by unanimous agreement of the shareholders by passing a resolution.

    What Happens If You Don’t Have a Shareholder Agreement?

    Your business could still operate smoothly in the absence of a shareholder agreement.

    Case STUDY

    Two builders set up business together on a handshake. They establish a company where they and their respective life partners are directors (4 people all together) and their respective family trusts are the shareholders. Each family trust holds 50% of the shares. The shareholders must vote on the appointment or removal of directors and a decision must be a majority decision. Because each family trust holds 50% of the shares, that means every decision has to be unanimous. 

    They each contribute equipment to the company. 

    They buy computers and motor vehicles through the company. The vehicles are expensive, under finance and registered in the name of the company, even though each builder takes one for their exclusive use and one builder puts personalised number plates on the vehicle they use.  

    A meeting with the company’s accountant highlights that there are unexplained transactions by one of the builders. The parties get into a dispute. As a result of the dispute, each of the life partners resign.

    It takes 12 months for the builders to come to an agreement about the vehicles, equipment and jobs in the business. They cannot reach an agreement about the $300,000 + sitting in the business bank account, which was frozen by the bank pending their agreement. 

    To resolve the dispute, it is likely the parties will have to go to court, with the likely result that the company is wound up and the money in the bank is used to pay legal fees in getting to that decision. 

    If the parties had a written shareholder agreement, that dispute could have been resolved in a few short months, at a significantly lower cost.

    However, not having a shareholder agreement would be problematic IF the shareholders cannot agree on a particular matter. It would be more difficult to resolve the dispute without a binding contract to rely on.

    We strongly encourage you to put a Shareholders’ Agreement in place if you have not already done so, and have it regularly reviewed by a legal professional to ensure it remains up to date and compliant with regulatory requirements. 

    How can Onyx Legal help you?

    If you have been in business with someone for a little while and everyone is still friends, or you are contemplating setting up a new company to run a business with someone new and would like to understand your legal risks, make an appointment with a member of our team.

    Make an Appointment

    Save Money with Business Name Registration, Australia

    Save Money with Business Name Registration, Australia

    by | Oct 18, 2022 | Business Structures, Law for Online Business, Legal

    Save Money with Business Name Registration, Australia

    Save Money with Business Name Registration

    You may be using a third party provider to keep your business name registrations up to date, but registering your business name directly through ASIC yourself may be the cheapest option and provide you with more certainty and control.

    You can register for an ASIC Connect account, or you can use the ASIC business registration system.

    If the website you are using to register a business name doesn’t include .gov.au in the domain name, then you will be paying extra to use the service. In 2022, you can register a business name directly with ASIC for just $39 per year, or $92 for 3 years. 

    Once registered, provided you keep your contact details up to date, you will receive notice of renewal from ASIC before your registration expires. If you discover that your registration has expired, then you will still have 30 days after the registration date to apply to re-register that name before it becomes available to the public.   

    If you receive letters from third party registration providers, they will usually be looking for annual fees that are more than what you would pay ASIC. Their additional fees cover the cost of their operations and their profits. ASIC publishes a list of what third party providers can and cannot do and you can complain to the provider if you have any concerns. 

    You should definitely NOT be paying more than one third party provider for registration services of the same name, and NOT for registration of your own name. 

    Do I Need An ABN To Register A Business Name?

    Yes, you need an ABN to register a business name. 

    An ABN is an Australian Business Number, and it is attached to whatever entity you use to conduct your business, whether that is as a sole trader, through a trust, or as a company or incorporated association. 

    For people setting up private foundations who think they don’t need an ABN – check here. 

    Do I Need To Register My Company Name As A Business Name?

    No. 

    If your company name is the same as the name of your business, then you don’t need to register them separately. 

    If you register a business name, no one will be able to register a company with the exact same name, and when you register your company name, no one will be able to register exactly the same name as a business name. 

    On the other hand, if you want to have separate business divisions with different names under the same company, then you can register multiple business names and, through your company ABN, they will be linked to your company, even though the company and the businesses have different names. 

    Sole traders can register multiple business names consistent with the different areas of business they are involved in. Those business names will be linked to their sole trader ABN.

    Be aware that some third party providers will write to you encouraging you to register your business name without checking to see if you have changed your business structure and set up a company with the same name. Their interest is in receiving your payment for registration, whether or not it is required. 

    Do All Business Names Need To Be Registered?

    Yes, and No. 

    Under the Business Names Registration Act 2011 (Federal), it is an offence to carry on a business under a name that is not registered. The penalty is 30 penalty units, which in 2022 equates to about $6,660. Doesn’t seem worth risking when its only $39 per year to register, does it?

    Did you know you can be fined $6,660 for carrying on business without registering your business name?

    If you use your personal name as a business name with a description of what you do – eg. “Emma Lee Accounting”, or “Sanjay Singh Consultants”, then you don’t need to register it, as using your own personal name for your business is not an offence. The same goes for a company that uses the company name to operate a business.

    How Do You Check If A Name Is Taken For A Business?

    Business name availability is easy to check, and a quick check can save you lots of money in the future.

    The first thing you should do is complete a quick Google or other browser search on your chosen name. If you find a competitor in the same country with the same or a very similar name – go back to the drawing board. It’s not worth the hassle and you create the risk of having someone send you nasty legal letters telling you to stop using that name. 

    Secondly, complete a trade mark search. In Australia, you complete a trade mark search through IP Australia. If someone has a registered trade mark in broadly the same area of business as you, you risk getting a nasty legal letter telling you to stop using that name. The Onyx Legal team can help you assess whether or not you have any concerns about a registered trade mark, or would like to register your business name as a trade mark. Simply send us an email to advice@onyx.legal with “Trade Mark Registration enquiry” in the subject line and we will respond to your promptly. 

    Thirdly, and now that you are reasonably certain no one else has a name the same or very similar to what you want to use, then do a name availability check on ASIC. Select “Organisation and Business Names” then complete some or all of the words you want to use in the “Name or Number” field and select “Go”. 

    A list of Organisation and Business Names should appear. If there are more than 10 names, there will be multiple pages. You can change the settings to display up to 50 names at a time. When looking at names, anything that says “Registered” next to it in the “Status” column is not available to you. 

    For example, we searched “forthright”, which produced 20 results. 10 of those results are registered. In the “type” column, you can identify whether they are business names or company names.

     

    You won’t be able to register a business name if it is already being used by a company, and vice versa. Names that are identical or nearly identical to an existing registered business name are not allowed.

    You can, however, add an additional word to the name – in this example some additions are “consulting”, “international” or “enterprises”, to register the same name.

    Do I Have To Register My Business Name With ASIC?

    Yes. 

    Until 2012 business name registration was state based, but it has now moved to one national register managed through ASIC. 

    Because your business name is linked to an ABN, your business name contact details will also be searchable through the ABN register. 

    What Is The Difference Between A Trading Name And A Business Name?

    A trading name refers to a name a business might use that is not currently registered. If you are using a trading name, or have used a trading name in the past and you want to continue using that name, then you should now register than name as your business name. 

    ABN Lookup will continue to display trading names until 31 October 2023. From 1 November 2023, ABN Lookup will not display trading names and will only display registered business names. What this means for your business is that anyone who checks ABN Lookup to ensure your business is legitimate is unlikely to find you unless you have a registered business name. 

    Business Name Registration Renewal

    You don’t have to renew your business name registration every year. If you register through ASIC, you can register the business name for three years. 

    Provided you keep your contact details up to date, you will receive notice of renewal from ASIC before your registration expires. If you discover that your registration has expired, then you will still have 30 days after the registration date to apply to re-register that name before it becomes available to the public.

    Business Name Registration Qld, NSW, Vic etc

    Business name registration moved from a state based system to a national system back in 2012. If you had previously registered under the state system, your registration should have been migrated to the national ASIC register. Some registrations were lost in that process because people did not keep their details up to date. 

    If you lost your registration and someone else is now using that name, you may need to adjust your business name in order to get it registered again. 

    You don’t have any ownership rights in a business name. The purpose of registration is to identify who is behind a business and demonstrate the credibility of a business. 

    What Happens If My Business Name Is Not Registered?

    Failing to register your business name, or to keep your registration up to date, can mean that someone else can register that business name and use it instead of you. If you allow your registration to lapse and someone else registers the same name, you have lost it and don’t have any automatic legal right to demand it back from the new business. 

    There may be a legal argument as to why they should hand it over, but to prove that right and get the order for them to handover the name, you would have to go through a court process. Court is costly, time consuming, stressful and provides no guarantee of success.

    Can Someone Else Use My Business Name?

    There are various legal arguments why someone else cannot use your business name without your permission. Whether you have an argument depends on all the circumstances, and we would need to have a discussion with you about your situation before advising. 

    Do I Own My Business Name?

    Business name registration does not give you ownership rights. If you want the right to stop other people from using your business name, or something similar to your business name, then you may be better to register that name as a trade mark. Be aware that not all names are capable of achieving trade mark registration.

    How can Onyx Legal help you?

    Need help understanding your business name situation, or want to register your business name as a trade mark? Make an appointment with one of our team. 

    Make an Appointment

    What Happens When Business Founders Want to Split Up?

    What Happens When Business Founders Want to Split Up?

    by | Aug 31, 2022 | Business Structures, Dispute Resolution, Law for Online Business, Legal

    What Happens When Business Founders Want to Split Up?

    Business Break-ups Can Be Messy!

    Unless the founders had something clear in writing beforehand, there is no end to the variety of things that can happen when founders want to go separate ways.

    If there is nothing in writing and the split is not amicable, all sorts of time consuming, distracting and stressful things can happen. 

    Here are some of the worst-case scenarios we have seen in practice, all where there was nothing in writing to start:

    1. A Founder Dies Unexpectedly  

    Whilst tragic at a personal level, it can also be very difficult for a business where one of the founders passes unexpectedly. Sometimes the family is aware of their business involvement, and sometimes they are not. In this case the family wanted the company to buy out the deceased founder’s interest in the business immediately and had some unrealistic expectations of what that interest was worth. 

    Animosity was growing between the parties due poor communications. We were able to present a strategy which allowed for the progressive buy out of the deceased founder over a two year period, without interference by the family in the business, and at an amount set by a ‘desk top’ valuation completed by the company’s accountant. The family of the deceased founder were offered the opportunity to get an independent valuation, but at their cost, and the $11,000 price tag put them off.

    2. One Founder Is Stealing Money From The Business, And Another Finds Out

    Unfortunately, this is not an uncommon scenario. 

    We’ve seen this occur in a variety of businesses from software to building and construction, and it is rarely pretty, and usually a long and slow process of separation if nothing was agreed in writing when the business was founded. 

    Too many people think “we don’t need a shareholder agreement, we will be fine” when they are all excited about getting started, and then when things go wrong, they have no protection.  

    In one example with a tech company, there were four sets of lawyers involved and the end result was a comprehensive deed of release covering the transfer of shares, forgiveness of debts, payment of money, and indemnities from the exiting partner. There were no admissions of liability in the deed. The deed took more than 15 months to negotiate and some shareholders meetings to approve decisions. 

    As long as the negotiations remain between the parties and their lawyers, law enforcement need not be involved. There is nothing that legally requires you to incriminate yourself or anyone else in the business. When fraud or theft is discovered and reported, it is usually through a third party.

    3. A Founder Walks Away Without Notice, Making Demands

    Things happen in people’s lives (like death, illness, an amazing job offer etc), and they can suddenly want out. This can be very hard on the people who want to continue with the business and a shock if not contemplated before one partner leaves. Business break ups are often referred to as like going through a divorce by the people affected. 

    Sometimes people want out, and they want their money, whether or not there is any owed to them at the time. Many people exiting a business think in terms of the future value of the business, rather than where it is as they exit, and vastly overestimate both what it is worth and the capacity of the other parties, or the business to pay for the exit. 

    If shares are to be transferred to existing business partners, then those individuals need to have the money to purchase the shares at the agreed value. In a start up phase, this is likely to be $1 a share and not onerous, but if the business has been running for a while and has some value, the remaining shareholders might not have thousands of dollars required to purchase those shares.

    If the shareholder is exiting and the company is making a distribution or buying back the shares (not a simple process) then there needs to be sufficient funds in the company to pay out the exiting party. 

    As long as you have clarity around ownership of assets, intellectual property and a realistic value of the business, then its just a process to be undertaken when someone leaves suddenly. If there is nothing in place, then it is a process of negotiation and often heartache before a resolution can be agreed. 

    4. A Shareholder Stops Contributing

     In situations where you have people with different skills coming together to build a business, not everyone necessarily has the same energy to keep the business on track. We’ve come across several businesses where a lot of effort was required of one party in the initial set up (for example someone building an App or a Website) and then their contribution become maintenance only. Another person in the business might be responsible for promotion, and there work is constant, requires review and reinvention, and never lets up. 

    An example we have is a digital business where the person responsible for service delivery got fed up with the lack of interest of the developer who originally built the website for the business. Their ongoing contribution was minimal and yet their deductions from the business stayed the same and the service deliver person felt like they were working to support two families, without any recognition.  

    Differing levels of effort over time could have been written into a shareholder agreement and appropriately dealt with, with the service delivery person gaining a greater interest in the distributions over time. Unfortunately, they had nothing documented. Fortunately, the exiting party, being the person who initially built the site, was prepared to accept an independent valuation of the business and to be paid out over six months rather than an immediate exit. 

    In another tech company, the exiting person was someone who thought that they were indispensable to the business, but kept upsetting customers to the extent they left. Again, and independent valuation was agreed and they accepted payment over time, but the process of getting to that point took 4 months and was disruptive to the business.  

    5. A Founding Partner No Longer Gets On with Anyone Else In The Business

    This was a strange scenario and there was no shareholder agreement. One of the founders had moved into the position of CEO of the business but was no longer on speaking terms with anyone in the business, whether other founders or staff. There were six founders, four of whom no longer had any involvement in the day-to-day operations of the business, but all were looking for a financial exit. 

    The company did have prospects, but a sale was not going to be possible whilst the CEO still had voting power to stop it.  There was not enough cash in the business to buy out the CEO without adversely affecting cashflow. 

    Through a succession of negotiations including an independent business advisor, we were able to get the CEO’s agreement to retire and stop being involved in the day-to-day operations, as well as converting his shares to a preference share which would be paid first in the event of any declaration of dividends or sale. The preference share had no voting rights. Tax consequences for the business and the individual were also examined before the transaction went through. 

    Business operations were a lot smoother without the former CEO’s involvement and a sale was achieved within 12 months, with all founders getting paid. 

    It is always easier to think through future scenarios and what is fair when everyone is excited about the business and getting started, and still friends. It is significantly harder, and more costly, to attempt to resolve an acrimonious split a couple of years down the track. 

    We provide clients with questionnaires to help identify potential needs in the business, and how people might exit to get you thinking about what might become important when you get started, whether setting up a joint venture or a shareholder or unitholder situation. There a lots of options available.

    How can Onyx Legal help you?

    If you are or plan to go into business with someone else and you’d like to secure the future of your business, make an appointment with us to talk through your options. 

    Make an Appointment

    10 Ways to Avoid a Joint Venture Fail

    10 Ways to Avoid a Joint Venture Fail

    by | Jun 17, 2020 | Business Structures, Contracts, Dispute Resolution, Law for Online Business, Legal

    10 Ways to Avoid a Joint Venture Fail

    Joint Ventures are great for collaboration

    Working together with another like minded entrepreneur is a clever way to accelerate business growth, which is why joint ventures remain a popular way for individuals or organisations to collaborate. But before you ‘Give it Away’ (as there’s always room for a Red Hot Chilli Peppers reference in a legal consideration blog), it’s critical to shore up your joint venture’s credentials to ensure a smooth, surprise-free partnership from beginning to end. In this Onyx Legal blog , we highlight 10 ways to avoid joint venture fails. [Ok, so we ended up with 11 – Ed.]

    Joint Ventures are usually for a specific and limited project, goal or purpose and may also be limited by time.

    1. Who is party to the joint venture?

    Establishing a joint venture is no time to be carefree with the details.

    Before entering into a joint venture, establish the legal identity of all parties. This means performing ABN and other similar regulatory checks. It might also mean checking driver’s licence details of individuals. 

    A client recently came to us with a proposed joint venture, and we could not establish who would pay him the $400k that he expected to receive as his share of profits. The deal fell over when the other party also failed to establish who would pay that sum.

    2. How Should You Structure a Joint Venture?

    It is important to understand that joint ventures and partnerships are different structures.

    A partnership is a long-term working proposition with full legal liability – a commitment to working together into the future.

    A joint venture is project or purpose-focused, and facilitates separate parties to continue working on other businesses simultaneously. Joint ventures can be done by contract with each party paying their own tax, but one of the parties must hold the assets relating to that venture (paperwork, accounts, assets) unless it is established in its own identity.

    3. What do you want to achieve with your joint venture? 

    It’s easy to get caught up in the potential of success and innovation at the beginning of a joint venture, which is why understanding what you want to achieve from the collaboration is so valuable.

    We’ve observed web designers, marketers and programmers enter joint ventures expecting to receive a share in profits at the end of the build, only to have ‘goal posts’ moved so regularly they exit the venture – leaving thousands of hours of unpaid labour in their wake.

    Failing to understand – or formalise – expectations in a joint venture regularly leads to disappointment.

    Put together a clear written agreement covering all the moving parts of your proposed joint venture, and allowing some flexibility for change as your venture grows. 

    have a written Joint Venture agreement

    Failing to understand – or formalise – expectations in a joint venture regularly leads to disappointment

    4. How long should your joint venture last?

    How long is a piece of string?

    There’s no single answer to this question; the duration of your joint venture is based on the purpose of the project.

    Will you be building something – a house or a piece of technology?

    Are you going to be running a developing a piece of software or an education program together?

    If you are building or developing something together the period of the joint venture might be the development period, and once you have a completed MVP (minimum viable product) you might roll it over into a company and start building a team to run it. 

    Where you’re entering a revenue share deal, it might be a two year focused time frame for growing the base income of the business. 

    Whilst you do not need to define a hard ‘end date’ to your joint venture in documentation, it’s useful for all parties to understand the purpose of the relationship, and a general timeline to completion of the project, and what completion looks like.

    We regularly write in rolling successive terms, such as a one year agreement that rolls over for another year unless someone terminates before the end of the year. 

    5. How can disagreements be dealt with or avoided? 

    A joint venture agreement should be robust, providing options should parties fail to perform their role, or decide to walk away from the project.

    In collaboration with your lawyer and with your project’s specific risks and opportunities in mind, carefully identify pressure points that require clarification and consider an approach to realistic exit should your working relationship end unexpectedly before the project is completed.

    Good joint venture agreements remove the element of surprise from projects, leading to higher rates of completion and reduced conflict.

    For a two party joint venture, it is a great idea to have some way of independently breaking deadlocked decisions. You could use a trusted third party as a referee, such as a mentor or board adviser. You could also allocated areas of decision making to each party that give one person a try breaking vote on those issues.

    6. What if someone wants out if the joint venture early?

    Build the possibility of a party leaving the joint venture into the structure of the joint venture to avoid future problems.

    The best laid plans of mice and men often go awry, and a party may need to exit the joint venture for any number of reasons. Family life may be under pressure, there could be financial considerations, or health issues to address.

    Fairness is key when devising a graceful exit from a joint venture. 

    7. What if you want someone else to join in the venture part way through? 

    Joint ventures can be created to allow for the possibility of other experts parties joining the project. Sales professionals are typically invited to join in after an MVP is achieved. 

    It’s important that you’re working with a lawyer to structure your joint venture for all possible contingencies … which could  include growing your collaborative group.

    8. Who will do what in your joint venture?

    Formalising a joint venture is no time for pussyfooting around responsibilities or making assumptions about role workloads.

    Success in your project relies on clear delegation of work, as all parties will have other responsibilities that could take their attention, in addition to the joint venture.

    It’s important to know exactly who will be paying the bills and who will be responsible for particular milestones.

    Having difficult conversations early on about the work or outcomes due for completion by exact parties of the venture will save plenty of strife when life gets busy or timelines become blown-out. 

    9. What happens if someone fails to live up to their responsibilities in the joint venture?

    As with any project, it’s possible that the whole thing could become scrambled eggs.

    Of course you don’t anticipate that will be the outcome, but it’s prudent to plan for unlikely circumstances. Think about COVID-19, a virus which has changed the trajectory of the global economy in the space of months. It was nigh on impossible to imagine the world shutting down a year before the corona virus; but there it is.

    People can fail to live up to the responsibilities in a joint venture for a variety of reasons, including circumstances beyond their control.

    Build into your joint venture contingencies around ‘failure to perform’ and decide what the dissolution of the relationship should look like. Who gets what? What will trigger the dissolution? How will any debts be paid?

    These are important matters to discuss with your collaborative partners and your lawyer.

    10. Who retains any intellectual property created during the venture, once it ends?  

    Often a complex matter to consider, the ownership of intellectual property is the cause of many disagreements.

    If the joint venture does fail, there is likely to be an argument about intellectual property and who owns what. If you can work out IP ownership at the commencement of your joint venture, you’ll design a logical way of dealing with the matter if you fall out.

    Maybe each party only walks away with what they contributed; maybe each party walks away with one complete copy of the created intellectual property.

    Certainty around what will happen at the time of the exit gives everyone confidence and reduces the risk of legal action. 

    11. How will the project be managed?

    A joint venture teaches entrepreneurs a whole lot about project management and communication. There are many moving pieces you and your partners will need to consider:

    • planning
    • stakeholder relationships
    • reporting
    • regular meetings and agendas
    • cashflow 

    While it is appropriate for different roles to be attributed, a single party needs to be appointed to ensure accountability across the whole of the joint venture. You will need someone with the energy and drive to ensure that things happen. 

    Flexibility must be built into this role, and an allowance to break ‘deadlocks’ in decision making.

    Many’s the time we have observed joint ventures fall apart when the directors of the governing entity failed to design a mechanism for change, independent of the warring parties. 

    Joint ventures are a terrific way for business owners to collaborate, to stretch their skills, test ideas, and to innovate. A well-designed joint venture allows for the clear division of work and responsibility, provides safeguards for failure and disappointment, and deals with the sticky stuff of business relationships before they become complex.

    At Onyx Legal we support business owners to come together with like-minded partners in joint ventures, creating structures that respond to your unique projects, packed with safeguards to keep you as confident and safe as possible.

    Our key takeaway for joint ventures?

    Think on it.

    Clarity at the beginning of a project leads to better results in a joint venture, and the chance everyone will meet or exceed their expectations. 

    How can Onyx Legal help you?

    Joint ventures have a contractual foundation.
    You can form a joint venture with a handshake, or you can put a little thought into your expectations and negotiate an agreement that clearly sets out each party’s rights and obligations, as well as exit opportunities. Download our Joint Venture Questionnaire here. We also highly recommend incorporating sensible dispute resolution mechanisms that will support the joint venture moving forward. If you are already in a joint venture, we can review the contract and clarify any legal rights and obligations you don’t understand.
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