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31 July 2023

It Depends – Can a company own shares in itself?

In this edition of ‘It depends’, partner Scott Hay-Bartlem talks about whether a company can own shares in itself.

Video transcript

In this edition of It Depends, we’re going to talk about can a company own shares in itself?

Can a company own shares in itself?

Okay. So, you know, I love a good ‘it depends’, but the answer here is actually even simpler. No.

Why not?

So, Section 259A of The Corporations Act says that a company cannot buy shares in itself. So, that means in almost every situation except very few limited ones, a company can’t own the shares in itself.

Even as trustee of a family trust?

Now we’ve had a few recently where a company is trustee of a family trust, and that company has owned shares in itself as trustee of the trust. It’s still the same answer. A company cannot own shares in itself, even if the shareholding is in the capacity as trustee of a family trust.

I’ve got a few files on my desk at the moment where people have not realized and accidentally ended up with the company owning the shares as trustee, that still gives you issues under the Corp’s Act.

What do I do?

So, if you’ve got to the point where you find that your company as trustee of the Family Trust owns shares in the trustee company, you’re going to have to look at either transferring the shares somewhere else or changing the trustee of that trust to someone other than the company. Maybe a different company. Maybe the people who are the principals of trust.

There’s a couple of things to be careful of. Stamp duty is an issue in some places. But also making sure that you’re not then going to someone who’s excluded as a beneficiary. And there’s another It depends about can I distribute from a family trust to my trustee? I’ve also got a few files at the moment where people have changed the trustee and found they are no longer beneficiaries.

So, very important where we’re buying shares in a company in a family trust, don’t have that company as trustee. If you’ve got any questions about family trusts or owning shares in the company which is the trustee, please contact a member of our team. Thanks for watching this edition of It depends.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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