Tuesday, July 16, 2019

(Stripped) Bare** trust share ownership



Recent posts Updating ASIC records – Simple (Simon) and Relationships of share ownership and the ASIC have looked at the various issues in relation to notifying the ASIC of the beneficial ownership of shareholdings in a private company.

One aspect of this style of situation that arises relatively regularly relates to companies that were incorporated prior to 1997. Before this date, every private company was required to have at least two shareholders.

In order to provide a practical solution where a person was wanting to be the sole shareholder a practice developed whereby a second party would be listed as a legal shareholder, however they would simply hold that share on a bare trust for the intended sole shareholder.

Where such a structure exists, assuming that the articles of association or constitution have now been updated, it is generally possible to vest (or bring to an end) the bare trust arrangement and have the ASIC records updated to simply list the sole shareholder.

** For the trainspotters, ‘stripped bare’ is a line from the U2 song from 1983 ‘October’. 

Tuesday, July 9, 2019

Updating ASIC records – Simple (Simon)**




Last week’s post touched on some of the issues in relation to disclosure of beneficial ownership of shares on ASIC records.

In situations where the beneficial ownership is incorrectly recorded there are three broad alternatives available, namely:

1) Leaving the ASIC records unchanged. From a compliance perspective while this approach is possible, it is not recommended.

2) Simply lodging an annual return or ASIC form 484 that updates the ASIC records from that date. In many cases this approach will be pragmatically appropriate and is certainly the easiest and most cost effective approach. There is a risk however that there may be adverse revenue consequences or challenges from a third party (for example a trustee in bankruptcy).

3) The final approach involves effectively rectifying ASIC records from the date the error first occurred and then arranging for the annual returns for every subsequent year to also be amended. Obviously, this approach can be a significant exercise and is generally only adopted where there are concerns from a tax, stamp duty or asset protection perspective.

** For the trainspotters, the title today is riffed from INXS’ first ever single, from 1980.

Tuesday, July 2, 2019

Relationships of share ownership** and the ASIC



Up until the early 2000’s, the ASIC required only very basic information in relation to the share ownership in companies.

From around 2002, the ASIC began requiring that all private companies disclose the basis on which shares were owned, in particular whether shares were owned beneficially or non beneficially.

Broadly the distinction is as follows:

1) If a share is owned beneficially this means that the legal owner listed in the ASIC records also has full beneficial ownership.

2) If a share is owned non beneficially then the legal owner holds the share subject to the terms of some form of trust arrangement (often this trust will be a standard discretionary trust).

Unfortunately the disclosure of beneficial ownership is an area of significant confusion and often the confusion does not arise until resolution of the issue is time sensitive (for example in lead up to a sale transaction or as part of an asset protection audit).

Some of the issues that arise in this regard include:

 (a) anecdotally, it appears that when ASIC was first imputing this data following the change of approach, many companies had their notifications reversed during the data entry process (that is shares that were owned beneficially were noted on ASIC records as being owned non beneficially);

(b) similarly many companies were confused about the distinction and therefore provided incorrect notification to ASIC; and

(c) in some instances a full search of all company records was not performed (for example all aspects of the company register) so the company provided incorrect information to ASIC.

Next week’s post will consider the three main alternatives for rectification where the beneficial ownership of shares is incorrectly recorded on ASIC records. 

** For the trainspotters, ‘relationships of ownership’ is a line from the Bob Dylan song from ‘Gates of Eden’.