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Benefits of a DBA Lawyers’ Company or Constitution Update

Overview

A company may act in a range of roles, including where it trades or invests in its own right, or where it acts as the trustee of an SMSF or a trust such as a discretionary, unit or bare trust. Having the right constitution and related documents is therefore prudent. Moreover, having up to date documents that reflect current law and practices is also worthwhile.

This article explores some of the benefits associated with obtaining a company or constitution update from DBA Lawyers.

Advantages of a DBA company

Companies are governed by their constitution, a key document which outlines the operation and management processes of the company. Constitutions were previously referred to as the memorandum and articles of association. Some of the key features of a DBA Lawyers’ constitution include:

  • The ability for a director to appoint successor directors.
  • A Division 7A loan facility agreement that covers shareholders and their associates.
  • Greater control and flexibility through different share classes.
  • An executor or attorney under enduring power of attorney can stand in a shareholder’s shoes.
  • A detailed memo on how a company operates, directors’ duties, compliance tasks and shareholder rights.
  • There is no need to change the constitution if the company seeks to commence or cease acting as a sole purpose SMSF trustee.
  • Flexibility for electronic document execution, meetings and resolutions. However, we recommend deeds be executed in the traditional ‘wet-ink’ manner given legal risks. Refer to our article on Six simple rules to execute a deed that satisfies all Australian jurisdictions.
  • Voting provisions that do not provide the chair with a casting vote that assists 50/50 structures.

We now discuss some of these features in more detail.

Appointment of successor directors

Under a successor director strategy, a director is able to appoint one or more persons to ‘step into their director shoes’ in the event of the original director’s mental incapacity or death. Whilst very few constitutions allow for this level of succession planning, the DBA company constitution has been specifically drafted to cater for successor directors and also caters for multiple successor directors that may be appointed without distorting voting power. A successor director appointment form is also included.

Different share classes

DBA Lawyers’ constitution allows for flexibility to issue various classes of shares. This can allow planning for differentiated voting, dividend, capital and other rights including:

  • ‘Guardian’ shares that allow for a guardian to exercise control in shareholder and director meetings.
  • SMSF shares that can be issued where the company acts solely as a sole purpose SMSF trustee. Note, however, that these shares are not required for a company to qualify as a ‘special purpose company’.
  • Limited shares that exclude the right to participate in the distribution of surplus profits or assets.
  • Capital shares that broadly exclude voting rights and entitlements.

SMSF trustee provisions

Where a company wishes to act or cease to act as a sole purpose SMSF trustee, DBA Lawyers’ constitution contains a provision that applies automatically when needed. Therefore, the constitution does not need varying if the company is also appointed as a trustee of a family trust.

Div 7A loan facility agreement

A Division 7A loan facility agreement is included just in case a debit loan arises and to ensure a written loan agreement is in existence. This assists in minimising the extra tax and penalties that may otherwise arise. The template covers both shareholders and a shareholder’s associates.

Special disability trustee provisions

Our constitution also includes special wording to satisfy the Social Security Act 1991 (Cth) criteria for a corporate trustee of a special disability trust. There are sounds reasons, especially succession and administrative ease, with having a company act as a trustee of a special disability trust and there are not many law firms or other suppliers that include these provisions.

Memo

A detailed company memo on how a company operates, directors’ duties, compliance tasks and shareholder rights is included. This document is similar to a product disclosure statement (PDS) to assist clients in understanding what they need to know when they have a company including information on the key provisions of DBA Lawyers’ constitution, as well as taxation, decision making and guidance on ongoing compliance.

Conclusion

DBA Lawyers’ documents include many value added benefits and is supported by a team of lawyers working at the ‘coal face’. We do recommend that companies be sourced from a qualified and quality supplier that can provide advice and ongoing service. To place an order for a DBA company please click here. For our constitution update service, please click here.

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice should be obtained from a licenced financial adviser under the Corporations Act 2000 (Cth).

Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.

By Daniel Butler, Director ([email protected]), Cassandra Hurley ([email protected]), Lawyer and Fraser Stead, Lawyer ([email protected]).

DBA LAWYERS

24 June 2024

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