Legal Tip 392: 4 Ways for 2 or More People to Jointly Own Shares in a Private Company

Imagine there is a private company being set up with 120 shares. There are to be 2 shareholders who are spouses.

They can do any or a combination of the following

a) 50 shares held by A and 50 Shares held by B

b) 100 shares held by A and B as joint tenants,

c) 100 shares jointly held by A and B as tenants in common,

d) A combination of the above

The differences are mainly in the estate planning area.


If 50 shares are owned each one of them could transfer their shares independently of the other – while alive or after death.


If 100 shares are held as Joint Tenants then the other will become the sole only on the death of one of them, regardless of what the will says. This can give certainty.

However, if 100 shares are held jointly as Tenants in Common there is a opportunity for each to leave their share of the 100 shares to someone else on death, a different person, the same person or the trustee of a testamentary trust.


The combo method is rarely used but you could get a bit of each of the above benefits.

There are other methods such as trusts and other companies, but this post is about beneficial ownership only.

 

Now imagine if a trust owned all the shares. A disc trust could choose who gets a dividend or share of profit when sold.

Beneficial ownership is fixed..the trustee. But entitlement is different

 

Terry I also thought of another way that people can seem to own shares ...but they are merely a legal onwer not a beneficial owner. ASIC allow ownership to be registered as beneficial ownership or non-beneficial ownership. That could be a issue for some guidance.

TYPICALLY, this may arise when for example Peter Pan owns shares but Peter is the trustee of a trust. ASIC dont allow registraton of who has the beneficial interest. Peter may also be holding the shares for a child.

Terry - any guidance on ways a non-beneficial interest can occur ?

Warning too that changing ownership from beneficial owner to non-beneficial could trigger a CGT event. Perhaps stamp duty too in some cases.

 

Is different classes of non-voting shares still a thing these days?

 

Yes very much so !! Different share classes remain a issue for advice at time of company formation, and thereafter. The constitution must be referred to for the rules pertaining to each class ie voting, dividends, winding up etc. Its a major risk for the poor souls who use the terrible website the Govt launched that allows a company to be easily formed without any rules yet with the ability to choose share classes. The fatal issue is to determine what the classes mean. If they have no rules then perhaps they are all of one common type so the use of share classes is defective.

It wont change legal ownership which may be in a company name. Shareholders generally arent involved in matters of company "property" as that is a act of the Directors.

I am also very much in favour of embedded constitution rules which can allow shares to be treated in a testamentaty maner so that on certain events shares automatically are dealth with by constitution rules. This for example may bypass a estate / will and bypass a executor. These issues should be given legal advice at formation.

 

I was thinking of beneficial ownership when I started the thread but legal ownership as trustee for someone else is another way

 

only when a trust relationship is involved really.