Every day, hundreds of new companies are incorporated in Australia. If you intend to set up a company as a founder or director, or plan to invest in a company, you should consider how you are going to own the shares in the company and whether you will do so in your individual capacity; through a company; or through a trust. If you are considering owning company shares in your individual capacity, make sure you understand the advantages and disadvantages as set out in this article.
Advantages
Owning shares in your individual capacity can have some advantages. These advantages include the following:
- Cost and complexity: Owning company shares in your individual capacity is much cheaper (and less complex) as you do not need to set up a company or a trust.
- Capital gains tax discount: If you own shares in a company for over 12 months in your individual capacity, you will be eligible for the 50% capital gains tax discount when you dispose of those shares.
Disadvantages
Despite the advantages of owning company shares in your individual capacity, there are also disadvantages. These include the following:
- No tax benefits: If you own the shares in your individual capacity, you would not have the tax advantages you would receive if the shares were held in a trust. See separately our article entitled ‘Share ownership: should I own company shares through a trust?’ for more information on the tax benefits of owning shares through a trust.
- No limited liability: In the unlikely event that the corporate veil of the company were to be pierced, you would be exposed to liability and an individual does not have limited liability as a company.
- Succession: If you die, your shares will vest in your estate.
Conclusion
Although owning shares in your individual capacity is cheap, easy and entitles you to the capital gains tax discount, it does not have the tax or limited liability benefits of a trustee or company shareholder. You should, therefore, consider owning your shares through a company or trust. If you are considering establishing a company or investing in an existing company, talk to a business structuring expert.