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In this edition of “It Depends”, senior partner Keeghan Silcock talks about your share class rights in a private company.
Hello and welcome to another edition of It Depends.
Today I am going to talk about your share class rights in a private company.
What are my share class rights in a private company?
It depends. Share class rights in each private corporation are not uniform. Not all common stock will have the same rights in each different private company. The way your rights as a shareholder in a company are determined is based on an agreement between the company and the shareholder. It is quite common to see share class rights documented in the private company’s constitution. Or you can see that these are agreed between the shareholder and the company in a separate issue terms sheet.
What if there is no written record of share class rights?
So what if there is no written record of the rights attached to a particular class of shares? For example, you may not have a constitution for a corporation or the constitution may be silent as to the rights that attach to a particular class of shares. In this case, there are replaceable rules in the Corporations Act, which could clarify the rights which attach to this class of shares, for example, there is a replaceable rule which says that in the absence proof to the contrary, each shareholder of a corporation shall have one vote on a show of hands or one vote per share held if a poll is demanded. There is also a common law presumption that all classes of shares will carry the same rights and obligations unless proven otherwise. So, if you have rights that are impaired for a particular class of shares but not for others, you might find that there is a presumption that those two classes of shares carry the same rights and obligations.
How to vary the rights of share classes?
If you wish to change the rights attached to a particular class of shares, you can do so by following the provisions of the company’s constitution. However, there may be constitutions that do not define how the rights of classes of shares may be changed. Or, you may not have an incorporation for a corporation, in which case you will need to follow the procedure set out in the Corporations Act. This procedure involves a special resolution of all the shareholders of the company, as well as the approval of the persons holding at least 75% of the class of shares whose rights you wish to modify. It is important that you seek tax advice before changing the rights which attach to a class of shares, as this may have tax consequences. For example, value transfer issues.
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Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for informational purposes only and does not constitute legal advice. You should seek advice specific to your situation and not rely on this publication as legal advice. If you would like us to advise you on matters arising from this publication, please contact Cooper Grace Ward Lawyers.
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