Who Controls Your Company? Directors, Shareholders and Structures Explained

Shareholders and directors

Company structures decide who makes decisions, who carries liability and who benefits. Many owners, including those who buy property through a company or trust, only find out how control really works when there is a dispute.

Shareholders own the company. Their main powers are to appoint and remove directors, approve major matters reserved by the Corporations Act 2001 or the constitution, and wind up the company. They do not run it day to day. Directors manage the business and owe their duties to the company, not to individual shareholders. A majority shareholder cannot simply instruct staff or overrule the board. Its real power is to change the board.

Someone who acts as a director without being appointed, or whose instructions the board usually follows, can be treated as a de facto or shadow director and face the same duties and liability.

Common traps

A nominee director must exercise their own judgment. Simply following instructions from a shareholder or offshore controller risks a breach, and the person giving the instructions may be a shadow director. Where shares are held through a trust, the trustee is the legal shareholder and votes. If the trust deed is unclear about who controls the trustee, expect disputes. Control of a trust that holds land can also matter for foreign purchaser duty and FIRB.

Sole directors, trustees and joint ventures

Sole director companies are simple but fragile. If the sole director dies or loses capacity, no one may be able to sign or operate the bank account until a new director is appointed. If they were also the sole shareholder, their personal representative can appoint a director under s 201F, but that takes time. Plan for it: consider a second director, and an enduring power of attorney that covers the person's rights as a shareholder. An attorney cannot act as a director in their place.

Corporate trustees are common for family and unit trusts. The company owes trustee duties to the beneficiaries, and its directors can be personally liable for trust debts the company cannot meet from trust assets. Keep trustee resolutions separate from the company's own business.

A 50/50 joint venture needs a deadlock process, or the venture can stall. With unequal splits, the minority needs reserved matters, information rights and anti-dilution protection. Put the arrangements in writing: the constitution, a shareholders' agreement and clear exit terms. If you are buying property through a company or trust, settle the structure before you sign. Call (03) 8658 7069.

General information only, not legal advice. For advice on your matter, call MWBL Consulting on (03) 8658 7069.