Tax Time Is the Perfect Moment to Check Your Business Is Legally Protected

Every year, tax time prompts North Queensland business owners to gather their receipts, talk to their accountant, and take stock of how the business is performing financially. It is a ritual that most of us take seriously. But there is another layer of the annual health check that tends to get overlooked – the legal one.

Your accountant can tell you how the business performed. What they cannot tell you is whether your partnership agreement still reflects how you actually run the business, whether your shareholders agreement adequately protects your interests if a co-owner’s marriage breaks down, or whether your Will would leave your beneficiaries in a workable position if something happened to you tomorrow.

As Sam Cohen, Principal of Cohen Legal, explains: “Tax time is a good time to look at whether, if you’re running a business, you’ve got an appropriate Will in place that deals with how the business would wind down or be sold on in the event of your death. You might also want to have a look at your structuring to make sure that your partnership agreements or shareholders agreements provide for what might happen in the event of an exit.”

This is not about creating unnecessary work or legal fees. It is about making sure the agreements you have – or do not have – are still doing their job.

Your Accountant Isn’t the Only One You Should Be Calling This Tax Time

When your accountant tells you the business is performing well and it is time to think about tax planning, that is a signal. It means the business has grown to a point where there is real value to protect. And where there is value, there is risk.

Sam’s view is straightforward: if the business is doing well, you can afford to set things up properly.

“If you’re making money, then there’s money to actually pay to set yourself up properly.”

And if you have not yet put agreements in place – a partnership agreement, a shareholders agreement, a buy-sell agreement,  you now have both the means and the motivation to do so.

The accountant conversation and the legal conversation are not separate. They are complementary. Your accountant manages your numbers. Your lawyer manages your risk.

What Does a Business Legal Health Check Actually Cover?

A legal review of your business is not a complicated exercise, but it does require someone who understands what the documents are actually protecting you against – not just what they say on paper.

Your partnership or shareholders agreement – is it still fit for purpose?

Business agreements are written to reflect circumstances at a point in time. But businesses evolve, relationships change, and life has a way of introducing variables that nobody anticipated when the agreement was first signed.

Sam recommends reviewing your documents every couple of years at minimum – not necessarily every year, but regularly enough that the agreement you have still reflects the business you are running and the relationships within it.

Has anything changed that affects your agreement?

Key questions to ask during a review include:

• Has anyone’s personal circumstances changed significantly?
• Has the business grown, restructured, or diversified into new areas?
• Are any of the original terms now difficult to operate under in practice?
• Has a dispute or disagreement – even a minor one – revealed a gap in how the agreement handles conflict?

Are you planning to bring in a new equity partner?

This is the trigger Sam identifies most consistently.

“If you are considering bringing in an equity partner – whether it be a partner or a shareholder, it doesn’t matter – then you should review your documents before you do that. Because if you change them beforehand, they’re already in place when you bring somebody else in. They can still ask for more changes, but the changes to protect your existing interests will already have been made.”

The time to update your agreements is before a new person joins – not after.

Why “We’re All Friends” Is Not a Legal Strategy

The most common reason business owners give for not having formal agreements in place is that they know and trust the people they are in business with. They are friends, family, or colleagues. The relationship is solid. It feels unnecessary – even slightly insulting – to formalise the arrangement as though you expect something to go wrong.

Sam has heard this many times, and she understands it. But she has also seen what happens when life intervenes and there are no agreed rules to fall back on.

“Put agreements in place that are like the rules of play. And if you do that when everybody’s happy, it’s easy to put fair and equitable terms in place. If you try to impose them later on down the track, you may find that there’s been a slight deviation in the way that people think.”

She uses the analogy of marriage: when you first go into business together, everyone is enthusiastic, aligned, and optimistic. That is exactly when the conversation about what happens in the event of death, separation, insolvency, or a simple parting of ways is easiest to have – because nobody is defensive, and nobody feels threatened.

Consider a scenario Sam has seen play out in North Queensland: brothers inherit a cane farm from their father.

There is no formal partnership agreement because they are family and they trust each other completely. One brother later goes through a divorce. His share of the farming partnership becomes part of the marital property pool. His co-owner – who has done nothing wrong and has no involvement in the divorce – suddenly finds himself a party to Federal Circuit Court proceedings. No partnership agreement was in place to give him a first right of refusal to buy out his brother’s share, or to set out how such a situation should be handled.

Sam’s view is that a partnership agreement, even where you have been trading as a partnership for some time is an investment in the successful management of the business. It lets people know where they stand and provides a regime to work within as you operate your business. Its easier to negotiate an agreement before a dispute occurs than it is to sort out the partners expectations where there is already disagreement.  It’s an investment.

“Life changes along the way and a partnership agreement provides protection for everybody,” Sam says. “It gives certainty to everybody about, you know, in the event of death, what’s going to happen? In the event of separation, how are we going to deal with that? In the event of insolvency, how are we going to deal with that?”

The same applies when colleagues buy a business together, or when staff purchase the business from a retiring owner. The existing familiarity can actually work against them – because it reinforces the assumption that a formal agreement is unnecessary.

It is a lot harder to put fair terms in place twelve months into a business relationship when one party parks in the other’s spot every day and the relationship is already strained. As Sam puts it, those conversations are much simpler when everyone is still enthusiastic and aligned.

Your Will and Your Business – They Need to Work Together

Business owners often have a Will. What they do not always have is a Will that meaningfully addresses their business interests.

Sam is direct on this point: “If you own a business, then your Will should deal with what’s going to happen with that business.”

This is particularly critical if you are the sole director or sole trader – the guiding mind of the operation. Without specific provisions in your Will, what happens to the business if you pass away unexpectedly?

If your beneficiaries are young adults, or people with no background in your industry, they may have no idea how to operate, sell, or wind down the business. They may not even know how to extricate themselves from a partnership or company structure. The business – and whatever value it holds – could deteriorate rapidly without clear direction.

One practical solution Sam has used for clients is nominating a trusted professional – often an accountant – in the Will to manage an orderly sale or winding down of the business. The Will can even provide for that person to be paid their professional fees, so the beneficiaries have proper guidance without bearing an unexpected cost.

But the Will alone is not enough if it conflicts with or duplicates the terms of a business agreement.

“If you do have a business agreement in place, then make sure your Will is complementary to your business. It’s called succession planning and business structuring, and it all needs to be looked at as a whole. Otherwise you can end up with conflicts.”

Tax time, when you are already reviewing the financial position of the business, is a natural moment to ask whether your Will has kept pace with how the business has evolved.

What Does It Cost to Get This Right – Versus Getting It Wrong?

One of the most common reasons business owners defer a legal review is cost. It does not feel urgent. The business is running. Nothing has gone wrong. And legal fees can feel like money spent on something invisible.

A properly drafted shareholders agreement, depending on the complexity of the arrangement and whether a buy-sell agreement is also required, can be an outlay at the time of startup that may not be welcome.

Sam’s perspective on this is blunt: “the cost of getting proper agreements in place is always a fraction of the cost of litigating when they are absent.”

To illustrate the point: Sam acted in a matter involving a 50% shareholder who had no shareholders agreement in place. The director of the company, who was also the sole decision-maker, had structured the arrangements so that all revenue was funnelled through a separate entity. The 50% shareholder – working hard and building what he believed to be a substantial business – was effectively working for a shell. By the time the matter was resolved, the cost to the client had reached $160,000.

“That’s the difference between lawyers and accountants,” Sam says. “Accountants are very good at numbers, whereas lawyers are better at risk.”

 

Getting legal advice when you first structure a business arrangement, or when you review that arrangement at tax time, is not a bureaucratic exercise. It is an investment in protecting everything you have built.

When Should You Actually Do This Review?

Sam’s guidance is practical and not prescriptive. You do not necessarily need a legal review every single year – but you should not let too much time pass without one. Her recommendation is every couple of years as a baseline, with additional reviews triggered by specific events.

 

The events that should prompt an immediate review include:

• Bringing in a new equity partner or shareholder
• A significant change in any owner’s personal circumstances – marriage, separation, or health issues
• A change in the structure or direction of the business
• The business crossing a new threshold of value or revenue
• Any signs of tension or disagreement between business partners, even minor ones

 

Tax time, however, remains one of the most practical natural prompts. You are already in the habit of reviewing the business with your accountant. Adding a conversation with your lawyer to that process costs relatively little and ensures your legal and financial positions remain aligned.

 

“My view is that you need it when you enter into the business, no matter how big the business is,” Sam says. “But certainly, if the business is being successful and everybody’s still happy, you certainly should look at it.”

The irony of business agreements is that they are hardest to negotiate when they are most urgently needed. The time to document how a dispute will be handled is before the dispute arises. The time to agree on exit terms is when nobody wants to leave.

Getting Clear Legal Advice Early Can Make All the Difference

Tax time is a reset – a moment to look at the business with fresh eyes and ask whether what you have in place is still working. Most business owners instinctively do that with their financials. The ones who also do it with their legal documents tend to be better protected when life throws something unexpected their way.

At Cohen Legal, we work with business owners across North Queensland – from Townsville to Mt Isa and the surrounding regions – to make sure their agreements, their Wills, and their succession plans are working together. Whether you have existing documents that need reviewing or nothing in place at all, we can help you understand where you stand and what makes sense for your situation.

Getting clear legal advice early can make all the difference. Talk to our team today at cohenlegal.com.au.

 

Disclaimer: This article provides general information only and does not constitute legal advice. You should obtain advice specific to your circumstances before making any decisions.