It is of great interest to us and most of our clients, how a Discretionary Family Trust dictates what will happen to their assets in the future. Most of our clients use Family Trusts as a wealth creation vehicle giving the flexibility for income distribution and Capital Gains Tax. It is really critical to understand that the assets within a Family Trust are not owned by the individual rather it is a control over the management of the trust and exercise of discretion as trustee that dictate the outcome.

Consider the recent high profile case of Gina Reinhart in the dispute with her children over the control of the key trust that owned significant business interests. The “appointor” is the named individual that can appoint or remove “trustee” of the trust. The trustee has the day to day management and control of the trust and exercises discretion about business or investment decisions. However, if there is a dispute then the appointor can remove the trustee and insert a replacement trustee.

It is vitally important that clients have the Trust Deed reviewed to check exactly who the appointor is and if they die, become disabled or insolvent, who in default will be appointed in that role. The last thing you want is for a trustee in bankruptcy to be controlling all of the assets and exercising the discretion to pay creditors. In addition, it is difficult for clients to dictate from the grave what will happen to those trust assets in the future on their demise.

So what happens after you are dead to the property, money and shares you have built up over a lifetime? You might not be able to “rule from the grave” but you can organise the players and stack the odds in favour of certain outcomes.

Ask us about how we can prepare a clear set of “Guiding Principles for Trusts” which can set out in detail the preferred exercise of discretion on specific future events. This is of great significance when there are business assets held or large property interests. We would be delighted to share with you our solutions in this regard and share with you the peace of mind that can be achieved by preparing these documents.

 

A very Happy New Year to everyone and I hope 2016 is amazing for you and your family.

I start this year wrestling with the issue of taxation on deceased estates. It is very often overlooked by the key beneficiaries of an estate as they are always keen to get their hands on the cash.

The problem is, before the Executor can make a payment, they must assess exactly what tax is payable, otherwise they will find themselves personally liable for the assessment by the ATO and no funds with which to pay the bill.

With rising balances held in self managed super funds it is more than likely that there will be a death benefit payable from that as the source of funds. Before making payments the trustee must calculate the tax payable to the person based on their status as a “tax dependant” or not.

A spouse will be able to receive a super fund payment without tax but a non-dependant adult child may not, subject to age, living at home status and study.

It is very important a Will maker take into account the different tax consequences for different individuals when making an allocation between family members in terms of the overall estate assets, including family trusts and super. This gets even trickier when you have second or third marriage status and children of prior relationships. How do you ensure they get their share but allow the source of income to continue for the spouse?

Control of a self managed super fund is critical and often the surviving spouse will want to maintain the assets within the fund if possible, so they can continue to receive the benefit of the tax status. It may be that the shares and Directorship as well as the constitution of the trustee company of a super fund, must be amended to ensure the right outcome is achieved and secured.

We are able to help our clients navigate the maze of legislation to achieve the right outcome according to their preferred allocation of estate assets.

Don’t forget to cover control of super funds after you lose capacity. A special purpose Enduring Power of Attorney is essential to appoint the right person to control the fund and to allow access for medical and living expenses.

I suggest that all Estate and Succession planning should be done in conjunction with the Financial Advisor and super fund or tax accountant, to achieve the maximum benefits.

Remember, it is too late when you have lost the ability to make decisions or when you die.

Do it now while you have time and invest the energy and expense to get it right. For more information … https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-paying-tax/Withdrawing-your-super-and-paying-tax/?page=9

 

 

I was looking through some recent articles in relation to the legal implications of our everyday use of technology, and wondered if other small business owners knew what the legal issues are.

We all have situations where we are asked to have a presence online, through our website, our Facebook or other social media avenues. Combined with that we all use software which comes with terms and conditions and it is a minefield of risk.

I thought I would step through a few of the relevant areas of law that impact on our rights and obligations as private individuals and business owners.

1. Terms and Conditions of Use – We need to think about the common terms that are contained within the agreements that we accept every minute of every day. Just remember that if you’re using software or accepting an update then you will have to accept the terms and conditions for the use of that software. This is called a “click wrap agreement” and is binding on you and your business. If a software provider prohibits certain use then it will be binding on you. If in doubt get advice before accepting or at least understand the limits of that use.

2. Access – There are some standards for accessibility for websites, have a look at the following case as an example of a vision impaired person seeking access to the same use as others: The National Federation of the Blind –v- Target. Does your website comply?

3. Content Regulation – There are some international content regulations which Australia seeks to comply with. Note the Australian Communications and Media Authority ACMA Complaints Scheme and the Internet Service Providers ISP Filtering Scheme, governs content. Consider if you are in breach!

4. Privacy and Spam – There is an International Privacy Law that applies as adopted by Australia under the Privacy Act. Have a look at Google Street View Case study where the personal details of people were required to be blocked. Note the laws relating to spam or unsolicited emails apply here too. Are you aware of the penalties for breach?

5. Social Networking Sites – Consider social networking privacy issues including cyber bullying and if you have a Policy to deal with this. Are you aware of the potential laws of prosecution for breaches by Directors of companies operating a site and the law of defamation?

6. Consumer Protection – There are international consumer protections and if you have a look at these cases they highlight the dangers: Australian Competition and Consumer Commission –v- Vassallo & Smith and Eva Gord –v- Ebay Australia. Heed the lessons.

7. Cybercrime – Keep in mind that cybercrime is very much on the increase and very few business owners now are unaffected by it. All you have to do is have one of your employees unwittingly click on an attachment and you have an encryption process locking down your files which will not be released unless you pay money to the cybercriminal. You can so easily be caught, and yet the laws really can’t keep up. Consider training and testing to protect yourself.

8. Defamation – Have a look at Gutnick –v- Dow Jones as a case study for defamation and think about how that might impact on the regular statements made through your websites, your feedback, your social media. Once it is out there it is dangerous. Get advice!

9. Domain Names – Domain name regulations in Australia and domain name disputes are more of an issue. Despite best intentions many clients simply register a business name and think that will protect them. The interaction with the registered company name needs to be considered carefully. See Myer Stores –v- Singh.

10. Copyright – International Copyright Law applies in Australia. You might like to have a look at the cases where content has been used without permission and think about the damages that could flow from that. Consider peer to peer networking and file sharing. Internet Service Providers are at risk even though they are not the individuals that are downloading content illegally.

11. Contracts – International Electronic Contracts are affected by the Electronic Transactions Act Queensland. Have you thought about how and the impact on your enforcement of your trading terms and conditions?

12. Misrepresentation and Consumer Protection – Have you considered how the Competition and Consumer Act (Cth) impacts on the statements that you make through your website, your Facebook and your Twitter? Just because it is on-line does not mean a right of action does not exist. When did you last check compliance for these issues in your business?

These are but a few considerations which might determine the success or even viability of your business. There are inherent risks in everything you do as a business owner when you use technology, to operate under domain names, trade through websites and a have a social media presence. Are you fully aware of the risks and how you can best protect yourself?

Just remember we are here to help and analyse your circumstances. If you would like us to conduct a Fixed Fee Audit of your business risk in relation to these issues please just give us a call.

 

All of us at some point know someone that has told us about illegally downloading a movie via an internet site. It seems unfair for those of us who pay full price through iTunes but most of us just figure that the younger generation are smarter than us.

A new Federal Court case sheds some light on the rights of the movie makers as owners of the copyright and those pesky downloaders. What happens when they get caught and how do they get caught?

It seems from the evidence in the Dallas Buyers Club Movie (DBC) and a group of Internet Service Providers (ISP), including IINet, Internode and Dodo, that the fight continues. On 14 August the Federal Court gave an indication of the compensation copyright owners can expect to claim in future copyright breach matters and how the illegal downloaders might expect to receive a bill.

What happened here was a digital investigator found 4,726 IP Addresses from which the DBC movie was illegally downloaded and shared on “Bit Torrent”. The owner sought a Court Order requiring the relevant ISP to provide details of the owners of the IP Addresses.

To get an Order like this they had to demonstrate a right to obtain relief against potential Defendants, namely the ISP account holders. The judge ordered the ISP to provide this information but DBC had to provide the letter of demand to the account holders. The concern here was an unreasonable demand for the level of damages suffered from the copyright infringement.

In terms of the amount of money the owner of the copyright intended to claim, the letters set out four things:-

1. A claim for the cost of downloading a film;
2. A claim relating to the uploading or sharing of the film on Bit Torrent;
3. A claim relating to additional damages because of repeat infringing;
4. A claim for part of the costs of proceedings.

The general principle is that damages must put the party who has had their rights breached, in the same position it would have been in, had the infringement never occurred.

The judge found that a claim relating to the cost of downloading the film and a claim for a proportionate part of the cost of proceedings was permissible. However the Court found that a claim relating to the uploading or sharing of the film on Bit Torrent and additional damages due to potential repeat infringements was not.

I learnt that a user downloads slivers of a movie file from many other uses, and the slivers are then put together to form the full movie. By doing this Bit Torrent automatically shares and uploads the slivers of the file to each of the other downloaders. It must be a Gen Y thing!

The owners of the copyright claim that each sliver shared was actionable. This meant they would have been charged for sharing the film on the internet at full price for each sliver. The Court found this was not permissible even though it was clearly designed to act as a deterrent to the illegal downloading.

The Court also found additional damages could be claimed when taking into account all the other relevant matters including downloaders history on Bit Torrent so that the more they downloaded, the higher the additional damages should be. The Court found that this approach by the copyright owner was not reasonable and it came back to the cost of hiring the film by download and a proportionate part of the cost of the proceedings.

The Court said they would only allow access to the identities of the downloaders if DBC undertook to make a claim for the cost of download of the movie and proportionate part of the proceedings only. The Court required the foreign based owner of the copyright to pay a bond of $600,000.00 to the Court which would be lost if they failed to follow the undertakings. Heavy stuff!

So the general principles to be derived are:-

1. Illegal downloaders can be pursued by virtue of the ISP; and
2. Reasonable damages will be awarded as well as a proportionate part of the cost of the action of the breach, but no more.

The tricky situation for an owner of a copyright is, will the costs of proceedings and pursuing the illegal downloaders and recovering small amount of damages be cost effective and enough of a deterrent. It certainly makes you think very carefully about how technology is disrupting the traditional framework of access to material, rights to exercise over the cost of sharing copyright material and whether any potential claims are adequate deterrent from doing it.

Owners of copyright of should think very carefully about how it is shared by the internet. Call us if you would like to discuss your copyright issues.

It is a surprise to many of our clients that the exchange of emails can constitute a binding Contract. The courts are frequently holding people to these Contracts and it is a topic that requires some careful consideration in times where email is the dominant method of communication. Stodgy old paper Agreements with a lengthy witnessing clause might get left on the desk when parties are talking. However, if there is sufficient dialogue and certainty of terms by email, that may be enough to create a legally binding agreement.

When parties are negotiating it is a real danger time and there are some rules that should be followed during those exchanges.

Although the Courts are often perceived as being backwards in regards to technology, they have in fact responded to this shift in communication by accepting email as a means of creating binding agreements.

Not all business managers have caught up with this trend and are regularly placing their company at risk.  It is a mistake to believe that what is said or agreed over email is not binding, and that a legally binding contract is only made when a formal written document is signed.

Take a look at some recent cases with us and let us know if you have a similar issue in your business.

EMAIL NEGOTIATIONS – BINDING OR NOT?

If you have started to negotiate by email but don’t want your emails to be a binding contract, then you must clearly state in your emails that “no binding agreement is formed unless and until a formal contract has been executed”.

If you don’t expressly state this condition, a Court is unlikely to read it that implied in your emails, is the intention to be legally bound.

In May this year, the Queensland Supreme Court held in Stellard Pty Ltd v North Queensland Fuel Pty Ltd¹ that a binding contract for the sale of land had been made by email. Amazingly, both the offer email and the email accepting the offer referred to the offer being “subject to contract” and “subject to execution“. This was not enough to make the offer conditional apparently.

Following the email exchange, the buyer sent a contract to the seller for execution but it was not signed. The seller later withdrew from the deal and entered into a contract with a third party. This is where the problem started as the buyer had understood the deal to be done.

The Court found that within the broader context of the emails, the parties had intended to be bound immediately. This was the case, even though the parties expected to substitute the agreement with a formal contract containing additional terms. Essentially the guts of the deal had been agreed to and were not able to be refuted.

The Court was also satisfied that the emails met the requirement that a contract for the sale of land be in writing and signed, applying the Electronic Transactions (Queensland) Act 2001(Qld).

The Stellard decision was very similar to an earlier decision this year by the Western Australian Court of Appeal in Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd². In this case, it was held that a binding contract to lease commercial premises had been made by a series of emails, despite the emails referring to the offer as being “subject to formal approval“. You can see the problem and the pattern here.

In its decision, the Court was not influenced by the fact that the parties could not agree on a reinstatement clause and that no formal lease was ever signed despite the parties’ intentions to do so.

The ‘binding email’ trend extends to settlement negotiations between lawyers by email.

In late June, the NSW Supreme Court found a binding settlement agreement had been made by email between lawyers in Universal Music Australia Pty Limited v Pavlovic³.

The Court held that the lawyer’s email stating that the client would sign the settlement deed, combined with the rest of the communications and conduct, was enough to create a binding contract. Whoops! It is a very old practice to ensure that you state “this offer is subject to final instructions from our client” just to cover your backside.

Although it was intended that a deed would be signed (and it never was), the Court refused to imply from the emails that no binding agreement would be created until the deed was actually signed.

THE SEDUCING BY EMAIL

The speed and casual ease with which emails can be written and exchanged is their attraction. Matters can progress much more quickly and the issues narrowed faster using this method. The down side is the danger emails represent when they are used for contractual negotiations, and why parties frequently find themselves in binding contracts.

These recent cases show that Courts may be inclined to imply a binding contract is made even though it has not been formally executed. The courts view emails as a modern business tool capable of binding parties and clearing even strict legislative requirements such as having a paper document in writing and signed by the parties.(Property Law Act)

We say loud and clear, to all our business clients, it’s crucial to manage the risk of being bound by emails. Statements like “subject to contract” are not enough. Clearly and consistently state in your emails that no binding agreement is made until a formal contract is executed.

Footnotes

¹ [2015] QSC 119.

² [2015] WASCA 21.

³ [2015] NSWSC 791.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances

Last week we talked about different methods of electronic signatures and why the process is important for binding agreements. This time we round off the discussion about how best to achieve the signing by law

What are the obvious legal risks?

There is a risk that the identity of the person using the private key is not accurate, or at least may be subject to a legal challenge. This would be similar to a situation where a handwritten signature is required and a person fraudulently signs the contract.

There is no practical way to verify the person’s identity with one hundred percent certainty using digital signature tools. Arguably the biggest failing with digital signatures and public-key cryptography generally, is that they are dependent on the private key being kept secret. If the private key is exposed, it is open for someone to dispute that they were indeed the person who “digitally signed” a document. If a targeted cyber-attack or data breach exposed a private key, then it would have a cascading effect on the enforceability of digitally signed documents which depend upon that key.

Accordingly, some may argue that this is also true for more traditional methods of signing, although there is certainly still a commonly held belief that wet ink signing trumps digital signatures in security – this is largely due to the fact that a wet ink signing can be witnessed and verified by another person also signing by a wet ink signing.

To help reduce this risk, there have been a number of additional verification and authentication techniques made available to users. Most digital signature software products incorporate a range of additional security measures into the signing process which can usually be configured by the user. These include the use of biometric authentication, chain of custody features, timestamps, and email and IP address tracking. Most importantly, software that generates digital signatures encourages the verification of the signor’s identity through a certification authority (CA). CAs are usually secure online databases that can be accessed by subscribed users. Here, users confirm their identity by providing certain information to the CA and are issued a digital signature certificate –or a unique ID – that is stored online. The recipient of the digital signature can then find a person’s digital signature certificate and compare the public key specified on it to the one they received, thus verifying the signor’s identity.

To ensure the security of transactions, it is therefore encouraged that parties have both the digital signature and digital signature certificate systems in place. Also, it is imperative that private keys are not readily accessible on company databases and are instead held by the person named on the digital signature individually.

Another issue to be aware of is the software’s archiving capabilities. It is imperative that the digital signature software you choose has an effective archiving system which makes retrieving data as easy as possible. This becomes important when a dispute arises with regards to whether an agreement was signed months or years after the fact.

The sophistication of your contracts and the individuals signing of these contracts will have a large impact on whether you find these tools useful.

Practical problems arise when using digital signature products for smaller contracts such as employment contracts as they will not have a certified authentication.

What about overseas?

How frequently you have dealings with other countries may affect whether you decide to use digital signature technology to sign important documents. While the UN Electronic Communications Hague Convention dictates that electronic signatures are to be treated in the same way as handwritten signatures, not all countries have ratified the Convention. Some international agreements where parties are in a country that did not verify the Convention, will still require handwritten signatures before being satisfied that a transaction is valid.

It is also important to note that most companies developing and licensing this sort of software are based in the USA. While most premium products currently comply with Australian and international law, their main concern will be complying with USA law. The laws in the USA and Australia will develop differently and changes to local legislation may become an issue. There has been no definitive case law in Australia confirming the validity of digital signature software, although it is important to note that cases have been won in the USA based on evidence retained by premium digital signature software.

Data retention and the Privacy Act

Just when you thought it was easy, there may be information privacy laws and data ownership issues to consider. Where personal information is disclosed overseas, potentially this is in contravention of information privacy laws in the the Privacy Act.

Certain information collected in connection with the digital signature process might be “personal information”. This would mean that copies of the background data, auditing and archiving information, as well as the agreements themselves may be disclosed outside of Australia. Most products allow users to save any documents that are signed through electronic means locally, however if a cloud storage is being utilised there may be room to negotiate data jurisdiction with the provider of your choice to eliminate this risk.

What are the conclusions?

We should all be mindful of the need to prove the validity of a digital signature if challenged. The key is ensuring that you and the parties you deal with, will register digital signatures with a CA and have access to an effective auditing system. Ideally these features should be easy to subscribe to in conjunction with using your digital signature software. Most commercially available products have built-in auditing systems which are easily accessible to trace the progress of each digital signature. Ultimately, you will need to make sure that you are satisfied with both your verification practices and the other party’s.

Good digital signature products will have more than the bare essential verification and authentication features. A product that is constantly updated to reflect this progress is desirable. You should consider carefully the particular needs of your company, training of your employees, and compatibility with existing internal electronic infrastructure. This is no easy task but certainly worthwhile if it means you can enforce the Agreement and get paid and avoid unintended claims made by another party overseas.

Make sure you check the procedures you have adopted as well as the software and give us a call if you want a review of these procedures. In the end you do need the agreement to be binding and not open to challenge, especially if it represents a large amount of money for your business.

It is a strange thing to find yourself increasingly challenged by the pace of change, and none greater than the impact of technology. People live in a very different way, than say 20 years ago, when I started this business, and the way we communicate with each other is fundamentally altered.

We are under real pressure to respond faster, process more efficiently and create a platform of client interaction that meets the “what’s in it for me” requirement.

We live in a smaller global community, events and the means to communicate have become easily accessible and barriers of distance and time zones have been removed. The way we conduct business transactions is also affected and the bridging of the international barrier has meant much of the mindset has fallen away. People see no issue with downloading agreements from different jurisdictions and using templates for negotiations in many different circumstances. This is regardless of the legal technicalities concerning enforcement if the deal goes bad and great caution should be exercised. Consider the types of transactions affected, the purchase of foreign goods or services on-line, a merger or takeover by a foreign company, property investments by non-Australian residents, contracts for Information Technology and multi-jurisdiction commodity agreements.  These are all regularly negotiated and confirmed using electronic documents and communications.

It is all very well to have documents downloaded, but how do parties effectively sign them? Are electronic signatures in fact legally binding, and can they be used as evidence in court?

The law of contracts formed through electronic means is a tricky area, so consider the following legal issues about electronic signatures.

Main Points

• Under Australian and International law, electronic signatures are a valid way of executing agreements.
• When evidence is required confirming the identity of the person signing and their intention to be bound by the content of contract, problems can arise.
• Digital signature tools and authentication methods (such as public key cryptography) can reduce the risks.

Electronic Signatures – A Difficult Proof?

Electronic contracts

For a contract to be validly formed by law, certain conditions must be evidenced. These elements are:

• an intention to create contractual relations;
• acceptance of an offer; and
• consideration (that is, a benefit in exchange for obligations by both parties such as a payment of deposit).

In most commercial transactions, the formal signing of a valid agreement electronically, satisfies these elements under International and Australian law, and is treated like a paper contract.

In addition to the usual requirements for a paper contract, a contract formed electronically is legally valid if:

• the contract is stored appropriately and can be accessed after signing; and
• there has been consent between the parties to receive information electronically, expressly or by implication.

It is important to note that, by law, a person or company will be bound by a communication if it was sent by the person or company, or with their consent. This can create problems on the issue of evidence of intention to be bound, particularly in circumstances where parties to transactions are not dealing with each other face to face (without a witness present).

What are Electronic signatures?

An electronic signature can be defined as, “a signature using software on an electronic document or transmission, either by an encryption method or a scanned version of handwritten signature”. They are recognised under both International and Australian law as having the same effect as handwritten signatures, subject to the following qualifications:

• there must be consent by the recipient to receive information electronically;
• the method of signing must identify the person sending the information, and indicate that this person approves of the content of the electronic document signed; and
• the method of signing must be as reliable as is appropriate for the purposes for which the electronic document was generated, in all of the circumstances of the transaction.  Evidence of the identity of the signing party and that they approve the contents of the electronic document must be identified in the document. This reaffirms the need as to prove the identity of the person signing and their authority to do so (e.g. Director/Secretary of a company).

Note that there are new software programs available that enable a person with qualifications to verify the identity and signature of a person for real estate transactions. For the purposes of new electronic property transactions through PEXA a solicitor can scan a signature, identify the person with 100 points (like a bank) and certify they have done so for this system. This will then enable banks to rely on the signatures and the titles office that will ultimately register the documents for the transaction (such as a release of mortgage or caveat).

The difficulty in using an electronic signature becomes apparent when need to prove the identity of the signing person where the hand written signature isn’t witnessed by another person. Is it really theirs?

There is also the risk that the content of the document has been altered after being signed, as this can happen in any other traditional transaction signed by hand. Digital signatures have been introduced to try and minimise these risks.

Digital signatures and public key cryptography

A “digital signature” is a term used by some to describe a type of “electronic” signature. Digital signatures use technology that associates the scanned signature with hidden electronic data which can be used in an electronic document or communication. The main differences between an “electronic” and a “digital” signature is that:

• a digital signature is linked to certain information, and can be verified;
• an electronic signature may just be text on an email.

Digital signatures are therefore unique electronic “identities” which make them a more trusted and secure way of verifying the author of a document.

Many, if not all digital signatures rely on public key cryptography as their identity verification core – including popular products like Adobe EchoSign, and DocuSign. The basic premise behind this method is that a cryptographic private and public keys (being a randomly generated set of digits) are used for identity verification purposes.

The private key is only used by, and known to, the person associated with it. The related public key is shared publicly and visible by anyone else on the receiving end of the document containing the digital signature.

To create a digital signature, the private key is used to generate a unique code from a combination of the private key and the contents of the message. That code is embedded in the document and becomes the digital signature. Usually an image attached to the digital signature is calibrated as the visual aspect of the signature, such as an electronic copy of the signing person’s paper signature. This is not legally necessary, however the party receiving the document can then view the public key associated with the digital signature. There is typically no way for the recipient of the public key to discover the private key through this process.

The information that can be gained by having access to the public key is usually:

• the name linked to the digital signature; and
• a verification that the contents of the documents have not been altered since inserting the digital signature to the document (by technical error or tampering).

As you can see there is some complexity about the manner of applying an electronic signature. I will continue more on this next week so make sure you contact us if you need assistance with signing agreements.

It has been a little while since I have had an opportunity to blog about interesting things I encounter when helping clients. The year goes quickly and despite the arctic vortex freezing us there is some heat in business activity right now.

It seems that there is a bit of political football going on with major policy decisions but there is one small glimmer of hope for those business owners wanting to give further incentive to key employees. Take a look at the recent amendments to the Income Tax Assessment Act 1997 which will mean that many small companies can offer tax effective incentives to employees under an employee share scheme (ESS).

What are the new rules?

The new rules operate from 1 July 2015, for companies that are:

• Not listed;
• Comprising turnover below $50 million per annum; and
• Incorporated for less than 10 years.

This will appeal to many of our small to medium business clients. If  shares in the company are issued to a key employee, it is not counted in the employee’s assessable income on one big condition.The discount on the price of shares cannot be any more than 15% of the market value of the shares in the company. This would require an accountant to do a valuation of the shares as at the date of issue.

Options to acquire shares at a later time, require different rules. If the exercise price of the option is equal to or more than the market value of the shares at the time that the options are granted, it is not assessable to the employee. This is great news for employer companies wanting to secure the management team and to broaden the risk profile of the business. It provides a good platform to give added incentive to important employees and allows the key to a better succession plan for the shareholders.

It means that the employees identified as able to add significant value to the business are not penalised in getting taxed on the new shares and a business owner can provide some additional security for the growth that an employee will generate over the next few years. The new rules apply regardless of whether there is a risk of an employee forfeiting their shares or options, provided the offer is broadly available to at least 75% of full time employees with at least three years’ service.

There are rules and conditions that must be satisfied to access these concessions. Careful drafting of the offer documents must be undertaken and also need to comply with requirements for share issues  under the Corporations Act 2001. Think how the minor shares can be dealt with and the rights of access to financial information first.

New market valuation rules what is a safe harbour?

It is frustrating for a fledgling company to be restricted as to how shares can be issued or transferred to core employees when access to other capital is so hard to obtain. The banks talk about wanting to lend money but the reality is that it is extremely hard to get good funding without a set of numbers from a solid trading history. The chicken and the egg argument comes to mind.

To make the start-up concession easier to access, the amendments also introduced a secure method or “safe harbour” which bind the ATO to accept a company’s valuation using  the ATO published guidelines.

The first published method appears to be based on a straight calculation of net tangible assets and most companies seeking to access the new concessions should be able to apply this method. This will save start-up and administration costs (insert “accounting costs”).

A couple of Key Points

As always there is a bit of a catch. You cannot do this share scheme without thinking about all other impacts on the business. Remember these are existing employment arrangements and as such must be though about carefully. You must get advice on the commercial shareholder perspective (for instance the right to buy back the shares if an employee leaves or tries to compete with the company). Do not forget the employment law aspects of any employee incentive arrangement, both from a Fair Work Act 2009 basis and a Contractual basis. Be careful about any representations made as sure enough they may come back to bite you. The beauty of a shareholding is you never know if it is going to produce dividends and it is up to the Director to exercise their discretion whether they declare a dividend or keep the money in the company for further growth.  How about these other things to think about :

• Will the terms of the share scheme provide a real incentive?
• When will employees be able to cash out their shares and is there a guaranteed buy back option?
• When will employees be liable to forfeit their shares?
• Does the scheme give rise to any claim on termination of employment?
• Will the share scheme have any Division 7A loan implications?
• Do the  documents comply with the fund raising requirements under the Corporations Act 2001.(less than 20 investors and less than $2 million in any one year?)
• Does the share scheme trigger a requirement for an Information Memorandum or a limited prospectus?

Minor shares have ‘oppression’ provisions or rights to a claim in set circumstances and possibly rights to wind up the company. Heavy stuff to think about before you act!

Please contact a member of our team if you would like further information and how we can assist with advice and documentation required to establish this type of share scheme.

How do you deal with the estate of a person who is from another country having residency in Australia and assets located here and overseas?
This is a very interesting area of law and the complexities depend on the circumstances and which country is involved. This week we have been helping the family of a woman who passed away in Brisbane leaving behind a school age daughter on her own.
We are filing an Application to the Supreme Court for Letters of Administration with the Will annexed. This will allow the brother to deal with the estate here and overseas The will has some problems as it was not witnessed and was written in Thai. There are assets in bank accounts in Australia, Singapore, China and Thailand. We have been able to help the distressed family repatriate the body overseas after help from the Consulate. A Family Court Order for “Parental Responsibility” will be made to enable the school and all Government departments to recognize the ability of our client to deal with all matters for the child. Face to face communication and a show of faith in our involvement has been culturally important. The process is then able to be planned to achieve the required orders and assets collected over time and invested by the administrator as trustee. The entire process will take weeks and likely months to finalize. It has been a pleasure to make a difference to this family in giving clear explanations about our laws and procedures and to work with the various departments and Consulate to achieve outcomes.