Which structure do I need?
The most used structures are sole trader, partnerships or incorporated companies and each model requires its own legal documentation.
A sole trader needs
At least a Power of Attorney to ensure a trusted person can pay the bills and formally act on the sole trader’s behalf it he/she is sick or away for an extended period of time. If the Power of Attorney is enduring then that person can also protect the business for possible sale on behalf of your estate.
A partnership needs
A partnership agreement setting out each partner’s rights and responsibilities, including a plan to deal with one partner exiting the partnership and a plan to bring in new partners.
A company needs
A constitution setting out how the company will operate. This is a generic document and does not reflect the specific situation of shareholders in a private company which is how most small business operates.
A company may also need a shareholders’ agreement which is similar to a partnership agreement. It reflects the often different investment made into the company by the individual shareholders, and what they expect to receive from their investment. It also anticipates the process involved when a shareholder wants to leave, dies or becomes incapacitated. When the company is formed consideration needs to be given to issuing sufficient shares and making different classes of shares available – this allows for expansion and future investment.