Alex is Sprintlaw’s co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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When you’re setting up or growing a company in Australia, “shares” will come up early and often. Whether you’re launching a tech startup, a consultancy, or a family business, understanding how company shares work will help you make smart decisions about ownership, control and funding from day one.
So, what exactly is a share, how does share structure work in Australia, and why does it matter for founders, investors and employees? This guide breaks down the essentials in plain English, highlights common pitfalls, and points you to the key documents and compliance steps you’ll need to keep things running smoothly.
If you’re unsure where to start, don’t worry - we’ll walk you through the basics and help you avoid the usual traps, so you can focus on building the business you’re excited about.
What Are Company Shares?
A company share is a unit of ownership in a company. If you hold shares, you own a portion of that company. That ownership typically comes with rights - for example, voting on major decisions, receiving dividends if they’re declared, and sharing in any surplus if the company is wound up after all debts are paid.
You’ll sometimes hear “stock” used in the U.S., but in Australia we generally say “shares.” The concept is the same: shares are how ownership is divided and tracked.
Why Companies Issue Shares
- Share ownership between co-founders and early team members.
- Raise capital by issuing new shares to investors.
- Formalise control, since voting rights usually follow shareholdings.
Founders often start by deciding how to allocate shares between themselves. Over time, you can issue additional shares to employees or investors as the business grows.
Types Of Shares (In Plain English)
Australian companies can create different classes of shares with different rights. The specifics live in your company’s governing documents (more on those below), but common examples include:
- Ordinary shares: Usually carry full voting rights and the right to dividends if declared.
- Preference shares: May get priority for dividends or capital returns, and sometimes limited or no voting rights.
- Non-voting or limited-voting shares: Useful for investors or employees where you want to separate economic upside from decision-making control.
If you’re considering anything other than straightforward ordinary shares, it’s worth reading up on different classes of shares and getting tailored legal advice so your structure supports your goals.
How Do Share Structures Work In Australia?
Your “share structure” is how ownership is divided: how many shares the company has on issue, what classes exist, and who owns them. It also covers the rules around issuing, transferring and buying back shares.
No “Par Value” In Australia
Australia operates a no-par-value regime. That means shares don’t have a nominal face value. Instead, shares can be issued for consideration (for example, cash or services), and your company records how much consideration is received. Don’t worry about setting a “par value” - it doesn’t apply under Australian law.
Who Sets The Rules?
The rules that govern your share structure typically live in two places:
- Company Constitution: Sets the company’s internal rules, including share rights and procedures.
- Shareholders Agreement: A private contract between the owners that covers decision-making, exit pathways, transfer restrictions, pre‑emptive rights, and dispute resolution.
These documents work together. Your constitution forms the default rules; your Shareholders Agreement adds commercial detail between owners and can prevent costly misunderstandings later.
Example: Co-Founders And An Early Investor
Imagine two co-founders start a company with 1,000 ordinary shares, split 50/50. A year later, an investor puts in capital for new shares. The company issues 200 additional ordinary shares to the investor. Ownership now adjusts (dilutes) across all holders because there are 1,200 shares on issue. The exact process, price and approvals should follow your constitution and Shareholders Agreement.
How Are Shares Issued, Transferred And Recorded?
Companies can issue new shares to bring in capital or reward contributors. Shares can also be transferred from one holder to another (for example, when a founder exits).
Issuing New Shares
The process usually involves:
- Board and, if required, shareholder approval under your governing documents.
- Deciding the number of shares and the consideration (cash or other agreed value).
- Updating the company’s registers and internal records.
- Notifying the Australian Securities and Investments Commission (ASIC) of changes to share structure or members within 28 days.
Issuing shares sits within Australia’s fundraising laws. If you’re offering shares to outside investors, check whether you can rely on section 708 fundraising exemptions or if disclosure is required. Getting advice early can save you time and reduce compliance risk.
Transferring Shares
Transfers follow your constitution and any Shareholders Agreement - there may be pre-emptive rights or consent requirements. Practically, you’ll need properly executed transfer forms, updates to the company register, and notification to ASIC within 28 days. If you’re unsure, this ASIC transfer of shares guide and our overview on how to transfer shares are helpful starting points.
Share Certificates And Registers
Share certificates are not legally mandatory in Australia. Many companies still issue them as evidence of ownership, but the legal must-have is an accurate, up-to-date register of members and share movements. Keep your registers tidy - it’s one of the simplest ways to avoid future disputes.
Employee Ownership (Options Or Shares)
Many startups incentivise staff with equity through an employee share or option plan. These can be powerful retention tools, but they’re technical and can have tax implications for both the business and employees. Read our guide to employee share options and get tax advice before you implement a plan.
Tip: Equity for services is still an “issue” of shares. Make sure the board approves it, the consideration is documented, and ASIC notifications are made on time (within 28 days) if it changes your share structure or members.
Why Your Share Structure Matters (Control, Funding And Exits)
Share structure isn’t just a formality - it drives how decisions are made, how profits are shared and how exits play out. A clear structure today prevents headaches tomorrow.
Control And Decision-Making
Voting rights usually map to shareholdings, but you can design different rights for different classes. You can also include reserved matters (decisions that require a higher threshold or unanimous consent) in your Shareholders Agreement to protect all parties on key issues like issuing new shares or selling the company.
Attracting Investors
Investors often negotiate specific rights, such as anti-dilution protections, information rights, board seats, or dividend preferences. If you’re preparing for a raise, align your constitution and Shareholders Agreement with what you’re willing to offer, and understand the trade-offs.
Bringing On Employees
Equity can help you compete for talent. Decide whether to grant shares up front or use options that vest over time. Vesting (e.g. over four years with a one-year cliff) aligns incentives and protects the company if someone leaves early.
Exits, Buy-Backs And Succession
Good paperwork covers what happens if a founder departs, becomes a bad leaver, or wants to sell. Common tools include buy-back rights, transfer restrictions, drag-along and tag-along provisions, and valuation mechanisms. Clear processes reduce disputes and protect continuity.
What Rights And Obligations Do Shareholders Have?
Shareholders typically have the right to vote on major decisions, receive dividends if declared, access certain information about the company, and share in any surplus assets on winding up after creditors are paid. Exact rights depend on your constitution and the specific share class.
Limited Liability (Why Many Choose A Company)
In a company limited by shares, your liability as a shareholder is limited to any amount unpaid on your shares. You aren’t personally responsible for company debts just because you’re a shareholder - a key reason many founders choose a company structure as they grow.
Directors vs Shareholders
Directors manage the company’s day-to-day and strategic decisions. Shareholders own the company and can appoint or remove directors, and vote on major matters. In early-stage companies, founders are often both shareholders and directors - but the roles (and legal duties) are different.
Dividends And Tax
Dividends are not automatic - the board decides whether to declare them and, if so, how much. Franking credits and personal tax outcomes differ between shareholders. If you’re planning regular dividends or an employee share scheme, it’s a good idea to get independent tax advice to understand your obligations and the most efficient way to structure things.
Key Legal Documents For Companies With Shares
Getting your core documents right will set your company up for smoother growth, easier investment, and fewer disputes. The essentials usually include:
- Company Constitution: The company’s internal rulebook. It should set out share classes, rights, and procedures for issuing, transferring and buying back shares.
- Shareholders Agreement: A private contract between owners covering decision-making, exits, pre‑emptive rights, drag/tag, valuation and dispute resolution.
- Board and shareholder resolutions: Formal approvals for issuing or transferring shares and other key actions. Keep copies with your company records.
- Registers and ASIC notifications: Maintain an accurate register of members, and notify ASIC of changes to share structure or members within 28 days.
- Employee equity plan rules and offer docs: If you’re granting options or shares to staff, implement a compliant plan and keep communication clear and consistent with employment contracts.
- Optional share certificates: Not legally required, but commonly issued as evidence of ownership and for investor confidence.
If you expect to raise capital, document your share classes up front and sense-check your fundraising settings against Australia’s fundraising exemptions.
Helpful Extras As You Grow
- Cap table hygiene: Keep a single source of truth for ownership. Align your cap table with your official registers.
- Vesting and leaver provisions: Build these rules into your Shareholders Agreement or employee equity plan so expectations are clear.
- Transfer processes: Standardise how you approve and transfer shares, including pricing mechanisms and timelines.
Key Takeaways
- A share is a unit of ownership in an Australian company and typically carries rights to vote, receive dividends if declared, and participate in surplus on winding up.
- Australia has no “par value” shares - focus on the consideration for an issue and keep clean records rather than setting a nominal face value.
- Your share structure (classes, rights and who owns what) should be clearly set in your Company Constitution and a well‑drafted Shareholders Agreement.
- Issuing or transferring shares requires approvals, accurate registers and ASIC notifications within 28 days; if you’re raising capital, check section 708 exemptions or disclosure rules.
- Employee ownership can be a great incentive, but equity plans and dividends can carry tax consequences - get advice and consider employee share options or vesting arrangements.
- Good documentation and tidy registers minimise disputes and make future investment or exit events faster and smoother.
If you would like a consultation on setting up your company shares and structure, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
