Legal Tip 261: 2 People Joint Owning a Private Company – 4 Different ways to Structure it

Discussion in 'Legal Issues' started by Terry_w, 7th Jan, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    There are 4 different ways that ownership of a private company can be structured by individual owners.

    A. 50% of the shares each

    B. Both jointly owning 100% of the shares as tenants in common, or

    C. Both jointly owning 100% of the shares are joint tenants

    D. A combination of the above

    There are also different ways to own shares involving trusts and companies, but that is a topic for another day


    What’s the difference?

    The main difference is what happens on death.

    With A and B above, if one dies their shares will pass via the will or intestacy laws

    With C if one dies the surviving owner becomes the sole owner.

    D could be a combination of the above – similar to that outlined here:

    Legal Tip 156: Combining Different Joint Ownership Methods Legal Tip 156: Combining Different Joint Ownership Methods
     
  2. Trainee

    Trainee Well-Known Member

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    Can husband and wife hold 50% ordinary shares each, but each also holds specific classes of shares? (Husband holds class b, wife holds class c).

    on husbands death ordinary shares can go to the wife (to maintain control of the company) while the class b shares go to a testamentary trust. That way dividends can be paid only on class b shares and distributed to the tt and then minor beneficiaries.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Example

    Homer and Marge open up Mr Plough Pty Ltd
    They both want to own 50% of the company each
    Homer could own 50 shares with Marge also owning 50 shares
    or
    Homer and Marge jointly own 100 shares as Joint Tenants
    (Marge dies and her shares go automatically to Homer)
    or
    Homer and Marge jointly own 100 shares as Tenants in Common
    (Marge dies and she leaves her shares to Bart)
    or
    Homer and Marge own 20 shares as Joint Tenants, 20 shares as Tenants in Common in equal shares and 30 shares each
    (a combo)
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes
     
  5. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    It could entirely depend on the rights associated with each class of share. Its not uncommon for a constitution to give identical rights to B & C shares which may be problematic for franking credits and streaming. Legal advice on the constitution or its amendment may be required. Part IVA and CGT also needs to be considered where existing rights are varied.
     

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