Important planning decisions highlighted with SMSF company shareholders
While there are no restrictions under the law around who can be a shareholder of an SMSF company, it can be an important consideration where a client wants to achieve a certain outcome, says Heffron.
In a recent article, Heffron managing director Meg Heffron said although shareholders of companies often have a lot of power, SMSF companies can actually be owned by anyone without failing the SMSF rules set out in the legislation.
Ms Heffron noted the importance of checking the company’s constitution which may impose its own rules about shareholders and may even restrict shareholders to being the members of the SMSF.
“Those rules definitely need to be followed or the constitution should be changed, they can’t just be ignored,” she stated.
As most SMSFs have just one member or two members of a couple, the most common shareholding structure is that these same people are the shareholders, she said.
However, different structures can be useful sometimes, she noted.
“For example, what about an SMSF where the members are no longer directors of the trustee company? This might happen because they have moved overseas and asked someone else to be the director of the trustee company instead,” she stated.
“Usually, the members would keep the shares in the trustee company. It means they keep quite a bit of control. While the new directors must be left alone to make all the decisions about the SMSF, the members (as shareholders in the corporate trustee) could always replace them if things got nasty.”
Another example, she said, might be where there is a Mum and Dad in an SMSF and they invite their four children to also join the fund.
“Again, there would usually be nothing to prevent mum and dad continuing to own all the shares in the corporate trustee,” she explained.
“If the children are adults, they would need to be directors (or have someone who holds an enduring power of attorney for them be a director in their place) but ownership of the shares in the trustee company would still give the original members just a little more power.”
Ms Heffron noted, however, that the parents, who are the original members of the fund, may find that their control is not as significant as they thought.
“For example, SMSF trust deeds often allow the members to replace the trustee entirely. If that was the case, a majority of members might be able to simply remove the original trustee company (owned by mum and dad) and replace it with a company in which the shareholding was entirely different,” she warned.
Ms Heffron noted that even though the super law doesn’t require it, the most common approach is for the directors, members and shareholders to be the same people.
“Cases where some of these are different usually come about to achieve a specific outcome in relation to control or estate planning,” she said.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
