Private Shares in a Company: Essential Guide for Australian Businesses

Thinking about issuing, buying or selling private shares in a company? Whether you’re raising capital, bringing on a co‑founder or rewarding a key employee, understanding how private shares work in Australia will help you grow with confidence.

It can feel daunting at first. There are rules under the Corporations Act, ASIC lodgements to manage, and documents to put in place before any money changes hands.

The good news: once you know the steps and get your paperwork right, managing private shares is straightforward. This guide walks you through the essentials - what private shares are, why businesses use them, how they’re structured, the process to issue or transfer them, and the key legal and compliance points to get right.

What Are Private Shares In Australia?

Private shares are ownership interests in a proprietary limited company (a “Pty Ltd”). Unlike public companies listed on the ASX, a private company can’t offer its shares to the general public. Instead, shares are typically held by founders, early investors, employees or family members.

Most Australian companies are limited by shares. Each share represents a slice of ownership and usually carries rights such as voting on certain decisions and receiving dividends when declared. If you’re setting up or growing a company, shares are the basic building blocks of ownership and control.

Key points to keep in mind:

• Shares can be issued by the company (new shares) or transferred between existing shareholders.
• Share rights come from two places: what’s recorded in the company’s Company Constitution and what’s agreed between owners in a Shareholders Agreement.
• Private companies are subject to specific fundraising limits and can’t raise capital from the public in the same way listed companies can.

Why Issue Or Buy Private Shares?

Shares aren’t just about ownership - they’re a practical tool to fund growth, align incentives and plan for the future. Common reasons include:

• Raise capital: Selling newly issued shares to investors can provide funds for product development, hiring and expansion.
• Bring on co‑founders or advisors: Issuing shares aligns commitment and rewards long‑term contribution.
• Reward and retain staff: Equity incentives can be offered through options or other structures, often under an employee share plan.
• Succession and family planning: Transferring shares can gradually transition control in a family business.
• Exit or partial cash‑out: Selling some or all of your shares is a way to realise value you’ve built.

If you’re exploring employee equity, it’s worth understanding how employee share options work in practice, and when an employee share option plan may suit your stage and goals.

How Are Private Company Shares Structured?

Share structure is flexible. You can tailor classes and rights to match your strategy now and as you scale.

Number Of Shares And Pricing

When a company is formed, the founders decide how many shares to issue and at what price. Some start with 100 or 1,000 shares; others choose 10,000 or more to make future allocations feel smoother.

The total number of shares isn’t what determines value - valuation is driven by the company’s underlying worth. Whether you start with 100 or 10,000, you can still apportion ownership in the same percentages.

Share Classes And Rights

Beyond ordinary shares, you can create different classes with different rights. For example, “A” and “B” shares might have the same economic rights but different voting rights, or preference shares might carry a preferential dividend or priority on a sale event.

If you’re weighing up how to structure classes and rights, this overview of different classes of shares can help you compare common approaches.

Important considerations as you design your structure:

• Voting: Who can vote on which decisions? Do some classes carry no voting rights?
• Dividends: Are dividends equal or does one class receive a higher or fixed dividend?
• Priority: On a sale or winding up, do any classes receive payment before others?
• Transfer rules: Are there restrictions on selling or transferring shares (for example, pre‑emptive rights)?

To avoid disputes later, record these rules clearly in your Company Constitution and align them with your Shareholders Agreement.

How Do You Issue, Buy Or Sell Private Shares?

There are two broad pathways: issuing new shares (the company sells new shares to an investor) or transferring existing shares (an existing shareholder sells some or all of their shares). Each path has its own steps.

Issuing New Shares (Share Subscription)

1. Agree key terms: Price, number of shares, class/rights, any conditions (e.g. due diligence) and completion date.
2. Board approvals: The board considers the terms, any pre‑emptive rights, and passes resolutions to issue new shares.
3. Put it in writing: The investor signs a Share Subscription Agreement, and any updates to your Shareholders Agreement or Constitution are prepared if needed.
4. Take payment and complete: Funds are received, the share register is updated, and share certificates (if you issue them) are prepared.
5. Lodge changes with ASIC: Record the change to share structure with ASIC within the required timeframe (generally 28 days) via ASIC’s online services.

Transferring Existing Shares (Share Sale)

1. Check restrictions: Review any pre‑emptive rights, board approval requirements and transfer provisions in your Constitution and Shareholders Agreement.
2. Agree the deal: Price, number of shares, completion conditions, warranties and timing.
3. Document the sale: The parties sign a Share Sale Agreement and a share transfer form. Any required board or shareholder resolutions are prepared.
4. Complete and record: Funds are exchanged, the share register is updated, and certificates (if used) are reissued or cancelled and re‑issued.
5. Notify ASIC: Lodge the change in shareholdings with ASIC online within the applicable timeframe (typically 28 days from the change).

If you’re weighing up process or paperwork, this practical guide to how to transfer shares covers the key steps from approval to completion.

Who Can Invest In A Private Company?

Private companies can’t make public offers of shares. Offers must fit within the exemptions under the Corporations Act (for example, to existing shareholders, sophisticated investors, or small‑scale personal offers within specific limits). Make sure your fundraising plan fits within these limits before you promote any offer.

How Do You Price Private Shares?

There’s no set market price for private shares. Pricing is a commercial decision informed by the company’s valuation and negotiation with the investor or buyer. For practical methods and common approaches, see this overview on valuing shares in a private company.

Legal Requirements And Ongoing Compliance

Issuing or transferring shares triggers several legal and record‑keeping obligations. Here are the big ones to get right.

Keep An Accurate Share Register

Every company must keep an up‑to‑date share register showing each shareholder, the number and class of shares held, and dates of issue or transfer. This is a core record and should be updated immediately on completion.

Board And (Sometimes) Shareholder Approvals

Most share issues require board approval. Transfers may also require board consent or shareholder approval depending on your Constitution and Shareholders Agreement. Check for pre‑emptive rights (existing shareholders’ first right to buy) before you sign any deal terms.

ASIC Notifications - Within 28 Days

Changes to share capital or shareholdings must be lodged with ASIC within the required timeframe (generally 28 days) using ASIC’s online services. This applies to all changes to share structure or member details - not just “significant” or “above a threshold” changes.

Fundraising Restrictions For Private Companies

Private companies are restricted from offering shares to the public. If you’re raising capital, ensure your offer falls within an available exemption (such as offers to sophisticated investors or small‑scale personal offers). If you’re unsure whether your planned offer fits, get advice before circulating term sheets or pitch decks.

Tax And Financial Considerations

Share transactions can have tax consequences (for example, capital gains tax for sellers, or tax treatment under employee equity plans). It’s wise to engage an accountant alongside your legal team to structure the transaction efficiently and meet reporting requirements.

Employee Equity And ESS Compliance

Offering equity to staff usually requires a compliant employee equity plan (sometimes called an employee share scheme or option plan), appropriate offer documents and careful tax planning. Equity documents often sit alongside your employment contracts and policies. If you’re considering options or performance rights, an Employee Share Option Plan can help you formalise the offer and handle vesting, leavers and tax reporting.

Executing Documents Properly

When companies sign share documents, ensure you follow the correct execution method, including using company officers and formats permitted under section 127 of the Corporations Act. If you’re unsure, this quick explainer on signing under section 127 is a useful reference.

Common Pitfalls To Avoid

• Skipping written agreements and relying on a handshake (this is a fast track to disputes).
• Missing the ASIC lodgement window - late fees and compliance headaches follow.
• Ignoring pre‑emptive rights or approval requirements buried in your Constitution or Shareholders Agreement.
• Issuing shares without documenting class rights, which creates uncertainty later.
• Offering shares publicly or to retail investors without an exemption.
• Overlooking tax consequences for sellers or employees receiving equity.

Essential Documents For Private Shares

Paperwork is what turns a deal into enforceable rights. The exact documents you need will depend on whether you’re issuing new shares or transferring existing ones, and whether any governance documents need updating. Common inclusions are:

• Shareholders Agreement: Sets out decision‑making, voting, transfers (including drag/tag and pre‑emptive rights), dispute resolution and exit processes. If you don’t have one yet, put a Shareholders Agreement in place before or alongside your first investment.
• Company Constitution: Governs share classes, rights, approvals and procedures. Make sure your Company Constitution matches your intended share structure.
• Share Subscription Agreement: Used when the company issues new shares to an investor, setting out price, quantity, warranties and conditions - see Share Subscription Agreement.
• Share Sale Agreement: Used for transfers between existing shareholders, covering price, title, completion and warranties - see Share Sale Agreement.
• Share Certificates: Evidence of ownership issued to shareholders (optional but common). For context and best practice, see share certificates.
• Board/Shareholder Resolutions: Authorise the issue or transfer, approve class rights and record decisions.
• Updated Share Register: Record each issue or transfer and maintain accuracy going forward.
• Equity Plan Documents (if offering employee equity): Plan rules, offer letters and ancillary agreements (e.g., leaver deeds or vesting schedules) - often implemented under an Employee Share Option Plan.

If you’re moving quickly, don’t skip the governance step. Clear documents now save a lot of time and cost later - especially if you raise additional rounds, sell the company or need to resolve a dispute.

Key Takeaways

• Private shares are ownership stakes in a Pty Ltd company and a powerful tool for raising funds, aligning incentives and planning succession in Australia.
• Design your share structure deliberately - consider classes, voting, dividends and transfer rules - and reflect those rules in your Constitution and Shareholders Agreement.
• Follow a clear process for issues and transfers: agree terms, approve via the board, document the deal, update the share register and lodge changes with ASIC online within 28 days.
• Stay within private company fundraising limits and plan for tax outcomes; involve your accountant early, particularly for employee equity or larger transactions.
• Use the right documents - subscription or sale agreements, certificates, resolutions and equity plan rules - to turn commercial intent into enforceable rights.
• Avoid pitfalls like missing ASIC deadlines, ignoring pre‑emptive rights or skipping written agreements; these are common causes of disputes and delays.

If you’d like a consultation about issuing, buying or selling private shares (or you need help putting your governance documents in place), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.