Roles within a private company 043-04010050

A customer may be involved in a private company in one or more ways. If that customer states, for example, that they have resigned as director they may continue to be involved in the private company. They may still be a shareholder and still expect the newly appointed director, an associate, to act in accordance with their own wishes.

In this example, even after resignation as a director, the customer will be considered to be involved in the private company and will need to provide the relevant documents before an assessment of their income and assets can be made in respect of that private company.

If a Complex Assessment Officer (CAO) has previously determined that a person has made a genuine relinquishment of control, an assessment of the private company may not be required at this stage.

The person whose name appears on the share certificate is the legal holder of the share. This person may not necessarily be the person with a beneficial interest in that share. They may hold the share on trust for another party.

Both parties may be considered to have an involvement in the company, one by virtue of their beneficial interest in the share and the other by virtue of their association with the first person. If the share provides voting rights, the legal holder of the share may vote as instructed by the beneficial owner or may have the power to vote independently.

A shareholder may be entitled to a share of that company's profits, paid in the form of dividends. They may be entitled to participate in the capital of the company when the company is wound up. They may also be entitled to vote and have a say in decisions concerning the company, such as the appointment of directors.

The Module PC - Private company (Mod PC) provides details of the rights and interests of the different classes of shares issued by the company.

If the company has a Constitution, or Memorandum and Articles of Association, the rights and interest of shareholders will be detailed in these documents. If there is no such document, the replaceable rules laid out in Corporations Law dictate the rights and interests of shareholders.

Where there is no mention as to how the assets are to be distributed on the winding up of the company, each shareholder is to be regarded as having a right to participate in the distribution of the company's net assets represented by the number of shares held.

If a customer, or members of a couple, hold(s) the majority of shares with voting rights, they can influence the outcome of decisions made by members, for example, the appointment of directors.

A shareholder may have purchased their shares in a private company at 'par value', a minimal amount such as $1 or $2, at a value reflective of the current market value or at a 'premium'.

Shareholders who obtained their shares in return for a contribution of capital that is representative of the market value of the shares at the time of purchase of these shares may be considered 'genuine investors' if they also meet additional criteria. See the References page for a link to the Guide.

Directors run the company on behalf of the shareholders. They also determine what amount is declared and paid as dividends, or if any dividends at all will be declared in a particular financial year. If a shareholder wants to realise the value of their shareholding in a private company the market may be minimal or non-existent and may be reliant on the company buying back the shares. Even if a market was found, the director's powers may include a veto over the sale or transfer of existing shares and the issue of additional shares.

For example, directors may have the discretion to decide to which class of shareholders, income is distributed, from one financial year to the next. They can also retain all profits with the company.