Share classes and appointing shares in your company

When allocating shares within your company, you may have come across the various types or ‘classes’ of shares.

Each class of shares grants shareholders certain rights for owning shares within the company.

What are shares?

Australian shares, also known as equities or stocks, represent ownership in a company.

When an individual or organization buys shares in a company, they become a shareholder and have the potential to earn a return on their investment through dividends and capital gains.

How are shares traded?

The Australian Securities Exchange (ASX) is the primary market for trading shares in Australia. It is home to over 2,200 companies and is the 11th largest exchange in the world by market capitalization. The ASX is regulated by the Australian Securities and Investments Commission (ASIC) which oversees the listing of companies, the trading of shares, and the disclosure of information to shareholders.

One of the key characteristics of the Australian share market is its high level of concentration. A small number of large companies, known as blue chips, account for a significant portion of the market. The top 20 companies on the ASX make up over 50% of the market capitalization, with the top 10 accounting for around a third. This concentration can make the market more volatile and susceptible to changes in sentiment towards these large companies.

Other aspects of the Australian share market

Another important aspect of the Australian share market is the high level of foreign ownership. Around 60% of the shares listed on the ASX are owned by foreign investors, with the majority being from the United States and United Kingdom. This high level of foreign ownership can make the market more susceptible to changes in global sentiment towards Australian shares.

The Australian government also plays a role in the share market through its regulations and policies. One of the key regulations is the Corporations Act 2001, which sets out the rights and responsibilities of companies and shareholders. The government also sets policies that affect the market, such as the Foreign Investment Review Board, which reviews foreign investment in Australian companies to ensure it is in the national interest.

In recent years, the Australian share market has been affected by a number of factors including the global financial crisis, the mining boom, and the low interest rate environment. The mining boom led to a significant increase in the value of resources companies, but the downturn in commodity prices has affected the performance of these companies in recent years. The low interest rate environment has also led to a search for yield among investors, with many turning to shares for higher returns.

Share Ownership

There are various types of share ownership, here are the types below:

    1.  Individual Ownership

• One of the most common forms of share ownership is individual ownership. This is where an individual buys shares in a company with their own money and owns them outright. The individual then has the right to vote on company decisions and receive dividends.
  

    2.  Joint Ownership

• Joint ownership occurs when two or more individuals purchase shares in a company together. This can be beneficial for those who want to invest together and share the risks and rewards of the investment.
  

    3.  Trust Ownership

• In some cases, shares may be held in a trust. This is where the shares are owned by the trust, rather than an individual, and the beneficiaries of the trust receive the benefits of owning the shares.
  

    4.  Corporate Ownership

• Companies can also own shares in other companies. This can be a way for a company to invest excess funds and potentially earn a return on investment.
  

    5.  Mutual Fund Ownership

• Mutual funds are a type of investment fund that pools money from multiple investors and invests it in a diverse range of shares. Each investor owns a portion of the mutual fund, which gives them a proportionate ownership in the underlying shares.
  

    6.  Superannuation Ownership

• Superannuation funds are a type of retirement savings fund that invests in a range of assets, including shares. The members of the fund own a portion of the shares held by the fund, which can provide them with a source of retirement income.
  

What are the share structures/classes?

The share structure of a company refers to the way in which ownership is divided among shareholders.

The most common form of share structure is the ordinary share, which gives the shareholder voting rights and the potential to receive dividends and capital gains.

Companies may also issue preference shares, which have a higher claim on dividends and assets in the event of liquidation, but do not have voting rights.

Additionally, companies may issue shares with different classes, such as Class A and Class B shares, which have different voting rights and dividend entitlements.

• Class A shares: These shares typically have more voting rights than class B shares, giving shareholders more control over the company's decision-making processes.
• Class B shares: These shares typically have fewer voting rights than class A shares and may not be entitled to vote on certain matters such as the election of directors.
• Preference shares: These shares have a higher claim on dividends and assets in the event of liquidation than ordinary shares, but do not have voting rights.
• Redeemable shares: These shares can be bought back by the company at a specific date or under specific conditions.
• Cumulative preference shares: These shares allow the accumulation of unpaid dividends, which must be paid before any dividends can be paid to ordinary shareholders.
• Non-voting shares: These shares do not have voting rights, but are entitled to dividends and capital gains.
• Convertible shares: These shares can be converted into a different class of shares or into bonds under certain conditions.

Below table displays each share class and what rights it offers for shareholders

It is important to note that different share classes may have different rights and privileges and thus the value of each class may be different.

It's important for an investor to understand the share classes of a company before investing in it.

Who can own shares?

In Australia, there are generally no restrictions on who can own shares in a company. Anyone, whether an individual or a corporation, can purchase shares in a company listed on the Australian Securities Exchange (ASX) or another exchange, subject to some regulatory requirements.

However, there may be restrictions on certain types of investors, such as foreign investors, who may need to comply with additional regulatory requirements, such as obtaining government approval. For example, if a foreign investor wishes to own more than 20% of a company listed on the ASX, they may need to seek approval from the Australian Foreign Investment Review Board (FIRB).

In addition, there may be specific restrictions on the types of shares that can be owned by certain investors. For example, some companies may issue non-voting shares, which may not be suitable for investors who want to have a say in the company's decision-making processes.

It's also worth noting that there may be differences in the ownership rights and privileges between different classes of shares. For example, preference shares may have different voting rights or dividend entitlements compared to ordinary shares.

Foreign investors may also be subject to ownership restrictions depending on the nature of the investment. For example, if a foreign investor wishes to invest in a company involved in critical infrastructure, they may be subject to tighter regulatory scrutiny and ownership restrictions.

It's also worth noting that private companies may have specific rules and requirements around foreign ownership of shares. For example, the company's constitution may prohibit or restrict foreign ownership of shares or require foreign investors to seek board approval before investing in the company.

While there are generally no restrictions on who can own shares in a company in Australia, there may be additional regulatory requirements for certain types of investors. Foreign investors are generally allowed to own shares in private companies in Australia, but they may need to comply with additional regulatory requirements and seek government approval in some cases.

Private companies may also have specific rules and requirements around foreign ownership of shares that investors need to be aware of.

How to allocate shares when registering your company

How do I allocate shares in my company when registering with Company 123?

1. Begin filling in a company registration form at Company 123
2. When filling in your share structure, pick the share class you would like, allocate how many shares you want in your company and select the amount per share.
   
3. Once you are up to filling in the director details, allocate the assigned shares to chosen directors and shareholders and continue with your application.

Can shares be transferred in private companies?

Shares in private companies can be transferred from one shareholder to another through a process known as share transfer. Share transfer involves a change in the legal ownership of the shares from the seller to the buyer.

In private companies, share transfers are generally subject to restrictions and requirements set out in the company's constitution or shareholders agreement. These restrictions may include requirements around shareholder approval, transfer fees, and pre-emptive rights for existing shareholders.

The process for transferring shares in a private company typically involves the following steps:

1. The seller and buyer agree on the terms of the share transfer, including the price and number of shares being transferred.
2. The seller completes and signs a share transfer form, which is typically provided by the company. The form will include details of the shares being transferred and any applicable transfer fees.
3. The buyer signs the share transfer form to acknowledge their acceptance of the shares being transferred.
4. The share transfer form is then submitted to the company, along with any applicable transfer fees, for approval.
5. Once approved, the share transfer is registered with the company and the buyer becomes the new legal owner of the shares.

It's important to note that the transfer of shares in private companies can be complex and may require legal and accounting advice. Additionally, the company's constitution or shareholders agreement may include additional restrictions or requirements that must be followed when transferring shares.

Company 123 are registered ASIC agents who can help you with making changes to your company. For share transfers or any other changes, fill in a changes to company details application and we will provide you the necessary documents to make these changes on ASIC.

Company Registration: What is it?

Company registration is the process of officially incorporating a business as a legal entity under the law. It is a legal requirement in most countries and is necessary to establish a company.

Company registration can be done either as a sole proprietorship, a partnership, or a corporation, depending on the size and nature of the business.

What is a company?

Companies are legal entities separate from its owner that can be registered with ASIC.

Every company must have members or shareholders, minimum of at least one member, who are the owners of the company and directors and secretaries who are the officers that manage the company.

As companies are given the same rights as a natural person, they can incur debt, sue or be sued for legal reasons.

There are various types of companies in Australia.

The most common types of companies in Australia are:

• 'Proprietary Limited' companies (Cannot raise money from the public through share issues).
• 'Public' Companies (Usually formed to raise or borrow public money by listing the company's shares for trading on a stock exchange).

All companies are governed by the Australian Securities and Investments Commission (ASIC), which administers the Corporations Act 2001 (Commonwealth) and other legislation. Public companies must also comply with the rules of the Australian Stock Exchange.

Advantages and disadvantages of registering a company

Advantages: 

• Shareholders have limited liability – meaning they are seen as separate entities to the company
• Companies can trade anywhere in Australia
• Lower tax rate

Disadvantages: 

• Reporting requirements can be quite complex
• Directors are held personally liable for the company’s profits and debts if they fail to meet legal obligations
• Your companies’ finances are public and can be viewed by the public

Roles within a Company

A company is made up of directors, secretaries, and shareholders.

To fill in these roles, you must get written consent from the people that will fill these roles:

• Director (must be over 18)
• Secretary (must be over 18)
• Member (every company must have at least one member).

What are your obligations as an officeholder?

If you're a director or a secretary of a company, you must follow the requirements in the Corporations Act.

As an officeholder, you must follow your legal obligations, these are:

• Ensuring company details are kept up to date
• Maintaining company records and details on the register
• Paying the appropriate lodgement fees and annual review fees as required

You, as an officeholder are ultimately responsible for your company's adherence to the Corporations Act.

A company can be formed with only one person, as a proprietary company limited by shares, the director and the shareholder or member can be the same person.

Other roles within a company

Along with the director, secretary and shareholders, a company also has a public officer.

What is a Public Officer?

The Public Officer of a company is the person who deals with the Tax Office in relation to the company's taxation affairs such as record keeping and submitting company returns.

Under Australian taxation law, every company carrying on business or earning income from property in Australia must have a public officer – unless the company is specifically exempted.

• The company decides who acts as public officer in accordance with its Constitution.
• The company must appoint a public officer within 3 months of the company:
• Commencing to carry on business; or
• First earning income in Australia.
• If a company fails to appoint a public officer within the 3 month period, it is guilty of an offence for each day it does not have a public officer.
• The public officer must be at least 18 and must live in Australia. They must also be capable of understanding the nature of their appointment.
• The public officer deals with the Australian Taxation Office (ATO) in relation to the company's tax affairs and is responsible for ensuring that the company pays the correct amount of tax.
• If a company is in default, then the public officer is liable to pay any penalties.

However, the public officer is not personally liable for payment of tax due by the company except for certain liabilities such as superannuation payments due by a company and when it is not paid, Directors may be personally liable for unpaid superannuation of the company.

Additionally certain Pay as You Go (PAYG) Withholding obligations in relation to tax withheld on employees’ wages, directors may be personally liable if the company does not remit the liability to the Australian Taxation Office in timely and due manner.

Apart from these liabilities all other debts of the company generally stay with the company unless the directors personally guarantee obligations to pay the debt for the company.

What costs are involved in the registration of a company?

The total fee to register a company with Company 123 is $598 which includes all government fees, our service fee and GST. The ASIC registration fee is $538 and our service fee, inclusive of GST, is just $55.

ASIC also charges an annual fee on the anniversary date of registration.

We also offer extra optional services, which includes:

• For an extra $50, Company123 as registered tax agents will apply for ABN, TFN and GST for your company.
• For an optional $55 extra Company123 will also print, bind and deliver your documentation.

What is an ABN?

An ABN (Australian Business Number) is a unique 11-digit number that is assigned to a business by the Australian Taxation Office (ATO). It is used to identify a business for tax and other business-related purposes, such as registering for GST (Goods and Services Tax) and claiming business-related tax deductions.

To register for an ABN, the business owner can visit the ATO website and complete the application form. The form requires the following information:

• Business name and contact details
• Type of business structure (sole trader, partnership, company, trust, etc.)
• Tax file number (TFN) or Australian Company Number (ACN)
• GST registration details (if applicable)
• Bank account details

It's important to note that ABN's are not mandatory but they are recommended for businesses that have a turnover of $75,000 or more, and it is required for certain business activities.

The process of registering for an ABN is generally straightforward and can be done online. It is important to provide accurate and complete information to avoid delays in the processing of the application. Once the application is submitted, it can take up to 28 days for the ATO to process the application and issue the ABN.

Keep in mind that, once you have an ABN, you will need to update the ATO with any changes to your business details, such as changes to your business name, address, or contact details.

How do i find my ABN?

If you want to look up information about a registered ABN, such as to check that your details are up to date or check the details of a supplier, you can do this on the ABN Lookup website.

ABN Lookup allows you to search publicly available information supplied by businesses when they register for an ABN.

How to register a company in Australia with Company 123?

1. Fill in a company registration form at Company 123
2. Receive all company documents within minutes, sign, and file
3. Receive ABN, TFN and GST registration (if necessary) and begin operations

There are a variety of ways in which individuals and organizations can own shares in a company. The form of ownership can impact the level of control and influence that an individual or organization has over the company, as well as the potential risks and rewards of the investment.

The Australian share market offers investors the opportunity to participate in the ownership of companies and potentially earn a return on their investment. The market is characterized by a high level of concentration and foreign ownership, and is affected by both global and domestic factors. It is important to understand the share structure of a company when registering a company as well as the regulations and policies that govern the market in order to make informed investment decisions.