Legal Tip 312: How to Record Ownership of Shares in a Private Company When acting as Trustee

It is confusing when setting up a trust because they are thought of as a ‘structure’ or an ‘entity’ like a company is. But trusts are just relationships. They can’t enter contracts or be recorded on title to property or shares.

When a private company is being set up and there is a trust that will be the shareholder it is the trustee that is the shareholder. It is possible to list ‘as trustee for’ on the company set up documents, but this is not recorded on the ASIC register. All that is recorded is a box – beneficial owner, Yes or No.


Someone later doing a company search will only find the name of the trustee. They may have an indication that they are acting as trustee, but there will be no indication as to who or what trust they are holding the shares for.


Example

Skinner is wanting to set up a company called SK Pty Ltd and he wants to have the shares of this company held by the SK Trust. He must first set up the trust as it needs to be first in existence to hold the shares. If Skinner is the trustee of the trust then he will be the shareholder of the company.


The fact that a shareholder is acting as trustee can be demonstrated by ticking the box to say they are not ‘beneficially held’. If there is no trust involved a person will be both the legal owner and the beneficial owner but if there is a trust they will not be the beneficial owner.


So, in the example above Skinner is acting as trustee so he should not indicate that he is the beneficial owner.



See this old post too

Legal Tip 182: Beneficial Ownership of Shares on ASIC Records Legal Tip 182: Beneficial Ownership of Shares on ASIC Records

 

We are ASIC agents and provide ASIC company services that include maintaining legal registers and regularly will address this issue. ASIC ask if the new shareholder will be holding the shares in a beneficial or non-beneficial capacity. ie Y / N. However the company register of members can (and we recommend it !!) show who the beneficial interest sits with. This information is not provided to ASIC. In some rare instances ASIC can ask who the beneficial interest is with.

eg ABC Pty Ltd has 100 Ordinary shares owned by David Smith. The company is about to start trading and David seeks these shares to be owned by his trust. He is the trustee for that trust.

Therefore we will transfer the shares from David Smith (Beneficially owned) to David Smith (Non-Beneficially owned) and would record the Smith Family Trust as the beneficial interest. The Form 484 and relevant resolutions are produced to effect the changes which are processed, when lodged. Importantly, when attending to year end financials and tax we should ensure that the investment in ABC Pty Ltd is a asset in the TRUST financials. The importance of correctly accounting for trust property is a key element for any trust.

If a creditor of davids was to seek court action against his assets David would be able to demonstrate through the financials, ASIC records, resolutions etc that he owns the shares merely as a trustee. They are not a personal asset.

 

Hope you do more than that. a declaration of trust is needed.

 

If the trust acquires the shares there is no trust to declare. It is an acquisition. In cases where a trust is to be declared its referred to a solicitor. We can generate the paperwork but wont. Imo its a legal service to declare a trust interest and give advice on it

 

A trust is not a legal entity so cannot acquire the shares. A trustee cannot contract with themselves so ti would need to be a declartion - the shareholder stops being the beneficial owner and now becomes trustee without any transfer.

 

Trust was merely a reference to the owner. Yes all legal ownership is with the trustee in their capacity as trustee.

That is one of two ways. If cash was involved the trustee can buy the shares eg a transfer for consideration. That could have some benefits if liquidator / insolvency trustee / court were to dispute the change of owner for example. eg the old backdated declaration of trust (a fraud). And if the amount was determined based on fair market value then it avoids the market value substitution rule issues.

This issue comes up a bit with property too. A declaration of trust can have some unintended duty consequnces for real property "interests" eg units in a unit trust over a issue of units that are paid / subscribed. A declaration of trust may not necessarily be the same trust as the discretionary trust. Anyone considering a DOT should seek legal advice before acting. I saw someone do it for property thinking it was way to bypass duty and THEN they changed the OSR land tax registration/s (an accountant suggested it !!) and they were slugged with duty. Ironic that the tax adviser had declared the CGT event but didnt see the declaration as a change of owner. Couldnt be unwound without further duty.

If we consider a smsf (a trust) this provides examples:
1. Inspecie transfer (which is both a non-concessional or concessional contribution) and an investment acquisiton or
2. SMSF buys listed ASX shares from the member
A declaration of trust may be ineffective and be inconsistent with super laws. Are the shares now owned by the SMSF ?. Doubtful

 

Often declarations of trust attract stamp duty. Minutes of the trustees should cover it, provided the assets are shown in the correct financials.

 

Oral declarations can be valid, but not for land. Any declaration of trust should probably be done via deed, especially if it involves a discretionary trust.