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’.