Justine is a legal consultant at Sprintlaw. She has experience in civil law and human rights law with a double degree in law and media production. Justine has an interest in intellectual property and employment law.
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If you’re setting up a new company in Australia - or thinking about restructuring - you’ve probably heard that many owners “hold shares through a trust.” It’s a common strategy for family businesses, startups and growing companies that want more flexibility around asset protection, risk, succession and distributions.
But how does it actually work? And is it the right move for you?
In this guide, we’ll unpack what it means to hold shares via a trust, where the benefits really sit, the risks to watch, and the practical steps to set it up correctly. We’ll also flag the key legal documents you’ll need so you can make informed decisions with your accountant and lawyer.
What Does It Mean To Hold Shares Through A Trust?
When people say they “hold shares through a trust,” they usually mean a trustee (often a company) is recorded as the shareholder on the company’s register, but the trustee holds those shares for the benefit of one or more beneficiaries under a trust deed.
There are a few common trust types used in Australia:
- Discretionary (Family) Trust: The trustee has discretion about which beneficiaries receive income or capital in a given year, within the rules of the trust deed.
- Unit Trust: Beneficiaries (called unitholders) hold defined “units” that entitle them to a proportionate share of income and capital.
- Hybrid Trust: Combines features of both discretionary and unit trusts (less common, and more complex).
Key roles in a trust structure include the trustee (the legal owner who holds assets on trust), the beneficiaries (those entitled to benefit) and often an appointor (a person who can replace the trustee). The terms are set out in a formal trust deed.
From the company’s perspective, the trustee is the shareholder. From a tax, control and commercial perspective, the trust deed and related agreements determine who ultimately benefits and how decisions are made. For a deeper look at how this works day-to-day, you may find it helpful to review beneficially holding shares through a trust in practice.
beneficially holding shares through a trust
Why Would A Business Use A Trust To Hold Company Shares?
There are several reasons founders and family businesses choose a trust structure when acquiring or holding shares in a trading company.
1) Asset Protection And Risk Segregation
A trust can help separate personal assets from business risks. Typically, you’ll also see a corporate trustee - a company that acts as trustee - to reduce individual exposure. This doesn’t replace insurance or sound governance, but it’s a useful layer in a risk management plan.
2) Distribution Flexibility
Discretionary trusts can give flexibility to distribute income or capital among eligible beneficiaries (as allowed by the trust deed). This can help with family wealth planning and future changes in circumstances. Always coordinate with your tax adviser to ensure distributions comply with tax law.
3) Succession And Control
Trusts allow you to plan how control passes over time (e.g. through the appointor role or changes to the trustee). This can be cleaner than changing personal shareholdings repeatedly, especially in family enterprises.
4) Investor Readiness And Confidentiality
Where privacy is desirable, the company’s shareholder register will show a trustee (often a corporate trustee), rather than multiple individuals. This can simplify cap table changes too - for example, unitholder changes within a unit trust may not require a direct change on the operating company’s register (subject to your agreements and any pre-emptive rights).
Do You Still Need A Company If You Use A Trust?
Yes - the operating business is usually run through a company for limited liability and credibility. The trust typically sits “above” that company as the vehicle that holds the shares.
You’ll want to think carefully about the overall stack:
- Operating Company: Runs the business, enters contracts, employs staff.
- Shareholder: The trustee (often a corporate trustee) holds the shares on trust.
- Trust Deed: Sets out beneficiaries, powers and rules for distributions and control.
Even with a trust in place, the internal rules of the company still matter. Your company’s rules live in a Company Constitution (if you adopt one) and your owner arrangements are set out in a Shareholders Agreement. These documents work alongside your trust deed to manage voting, dividends, exits, pre-emptive rights and dispute resolution.
If you’re using a unit trust at the shareholder level, you may also need an Unitholders Agreement to govern decision-making between unitholders.
How Does Holding Shares Via A Trust Work In Practice?
The high-level steps usually look like this (your exact order may vary depending on your accountant’s advice and whether you’re restructuring or setting up from scratch):
Step 1: Choose The Trust Type And Draft The Trust Deed
Work with your advisers to determine if a discretionary (family) trust, unit trust or hybrid trust is suitable. The trust deed should outline beneficiaries, trustee powers, distribution rules and succession mechanics (including the appointor role). If you’re new to trust compliance, this overview of trust requirements (ABN, TFN and related registrations) is a handy reference.
Step 2: Set Up A Corporate Trustee
Many businesses use a special-purpose company to act as trustee. This helps limit personal liability and makes changes to control easier down the line (you can change directors or shareholders of the trustee company without disturbing the trust assets).
Step 3: Incorporate Or Restructure Your Operating Company
Register your trading company with ASIC, adopt your company rules (replaceable rules or a Company Constitution), and prepare a cap table that records the trustee as shareholder “as trustee for ”.
Step 4: Issue Or Transfer Shares To The Trustee
When issuing new shares, the subscriber is the trustee, noted clearly as trustee for the relevant trust. If you’re restructuring, you may complete an off-market share transfer to move existing shares to the trustee - the process and approvals should align with your constitution and Shareholders Agreement.
For a practical walkthrough, you can review how to transfer shares and what documents the company must maintain.
Step 5: Keep Your Registers And Certificates Up To Date
Update the company’s member register and issue share certificates to the trustee. If any terms attach to the shares (e.g. different classes), make sure these are reflected in both your constitution and the issuance documentation.
Step 6: Ongoing Compliance And Distributions
Minute trustee decisions properly, prepare annual trust distribution resolutions in line with your deed, and ensure you meet tax and reporting obligations. If the trustee intends to move assets between related entities, you may hear the term “in specie distribution” - which describes distributing assets rather than cash.
Benefits, Risks And Common Pitfalls To Watch
Trust structures can be powerful, but they’re not a silver bullet. It’s important to weigh benefits against complexity and ongoing discipline.
Benefits At A Glance
- Flexibility to direct income or capital (within the deed and tax rules).
- Separation between the trading entity and the ultimate family or investor group.
- Succession options via trustee and appointor changes rather than changing the operating company’s register each time.
Risks And Traps
- Trustee Liability: If you use an individual trustee, that person can be exposed to liability. A corporate trustee can limit this, but directors still have duties to consider.
- Poor Paperwork: Failing to write “as trustee for ” on share registers, certificates and contracts can undermine the structure. Precision matters.
- Deed Misalignment: If your trust deed conflicts with your Shareholders Agreement or constitution, you can end up with deadlocks or unintended outcomes. Align the documents.
- Changes In Beneficiaries Or Control: Altering beneficiaries, units or appointors can trigger tax or duty consequences, or even be treated as a “resettlement.” Always seek advice before making changes.
- Lender Requirements: Banks may require personal guarantees from controllers even if you have a trust, so plan for this in your risk and security arrangements.
- Tax Complexity: Distributions and streaming rules can be technical. Coordinate closely with your accountant to avoid adverse outcomes.
Alternatives And Complements To Consider
Trusts are one tool in the toolkit. Depending on your goals, you might explore other structures or use a trust alongside them.
- Direct Ownership: Simple and inexpensive, but less flexible for family planning and succession.
- Holding Company: A “topco” directly owns shares in the trading company, which can centralise risk and capital. This can also work with trusts (e.g. a trust owns the holding company’s shares).
- Different Share Classes: You can tailor rights for founders, investors or team members with different classes of shares.
- Employee Equity Plans: Consider option or rights plans to reward staff without changing the trust setup at the top. A trust can still sit as the principal shareholder while the company runs an employee equity scheme.
What Legal Documents Will You Need?
To set up and run this structure smoothly, you’ll usually need a core pack of documents. Getting these right early prevents messy fixes later.
- Trust Deed: The master document that governs trustee powers, beneficiaries, distributions, appointments and succession.
- Company Constitution: The internal rulebook for your company, particularly important where you’re issuing different share classes or setting custom governance rules. You can adopt or customise a Company Constitution.
- Shareholders Agreement: Sets out ownership, decision-making, pre-emptive rights, exit processes and dispute resolution between owners (including where a trustee is a party). See Shareholders Agreement.
- Unitholders Agreement (if using a unit trust): Governs how unitholders make decisions, transfer units and resolve disputes. See Unitholders Agreement.
- Share Certificates & Member Register: Evidence of legal title; make sure the trustee is named correctly “as trustee for ”. Here’s a quick guide to share certificates.
- Share Transfer Documentation: If you restructure or bring in new owners, you’ll need the proper transfer forms, board approvals and updates to registers. This overview of how to transfer shares covers the essentials.
- Deed Of Accession: For any new owner joining an existing Shareholders Agreement or unitholder arrangement.
If you’re planning a more complex restructure or a staged investment, our team can help map the documents and steps so each piece lines up with your commercial plan.
Practical Tips For A Smooth Setup
- Line Up The Docs: Make sure your trust deed, constitution and owner agreements point in the same direction (on pre-emptive rights, voting, distributions and transfers).
- Use A Corporate Trustee: This is standard practice for asset protection and administrative ease.
- Get Names Right, Everywhere: On share registers, certificates and contracts, use the full legal name of the trustee company, followed by “as trustee for ABN ”.
- Plan For The Future: If you anticipate investors or employee equity, build flexibility into your constitution and Shareholders Agreement now so you’re not retrofitting later.
- Keep Minutes And Resolutions: Trustee resolutions for distributions and key decisions are not “nice to haves” - they’re core records if you’re ever audited or in a dispute.
Restructuring Existing Ownership Into A Trust?
Moving shares you already hold into a trust can involve capital gains tax, stamp duty (in some states) and company approval processes. It’s common to use an off-market transfer with proper board resolutions, updated registers and new share certificates. You’ll also want to check any change-of-control clauses in major contracts, and your lender’s consent where security is involved.
Because the consequences can be significant, it’s wise to take coordinated advice from both a lawyer and an accountant before pulling the trigger. If you’re changing share rights at the same time, confirm that your constitution supports the new class terms and procedures for variation.
Key Takeaways
- Holding company shares through a trust is a common Australian approach to add flexibility for distributions, succession and asset protection, especially when paired with a corporate trustee.
- You’ll still run the business through a company - the trust typically sits above it as the shareholder, and you’ll rely on a strong Company Constitution and Shareholders Agreement.
- Precision matters: record the trustee correctly “as trustee for ” on share registers, certificates and contracts, and keep minutes and distribution resolutions up to date.
- Align your trust deed with your company documents so pre-emptive rights, voting and exit rules don’t clash across layers.
- Future-proof your structure - consider different share classes and employee equity, and build that flexibility into your documents now.
- Restructuring existing holdings into a trust can trigger tax and duty consequences, so take coordinated legal and tax advice before you proceed.
If you’d like a consultation on holding shares through a trust for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
Justine Wulegal consultant
