Shareholders & Interest



Shareholder Count Test
There are special rules for determining the number of shareholders for qualifying company purposes. Shareholders related by blood or marriage to within one degree of relationship are deemed to be one shareholder (for example, parent and child, husband and wife).

To determine the number of degrees of separation in a relationship, visualise a family tree and count the steps back to a common ancestor and then forward to the other person. Each link between names is one degree of relationship.

For example, a brother and sister are related to within two degrees, as follows:

  • Parent
  • Son/Daughter

If all 3 are shareholders, they will count as a single shareholder. However, if only the siblings are the shareholders, they will count as 2 shareholders.

Note that a relationship between a step-parent and step-child is a second degree of relationship.


Corporate Shareholders
Only companies that are also qualifying companies may hold shares in a qualifying company (except when they are acting as a nominee). In determining whether there are five or fewer shareholders, the company is not counted as a single shareholder. Rather, you must “look through” the company to count each of its individual shareholders.


Trustee Shareholders
If a trustee is a shareholder it is necessary to “look through” the trust to the beneficiaries of the trust. The number of beneficiaries (shareholders) for the purpose of this count test will be the greater of:

  • The number of beneficiaries who have received dividends from the trust in that income year where all the dividends were derived from a qualifying company, or

  • The number of beneficiaries who elected that the company become a qualifying company.


Nominee Shareholders

Shares held on behalf of a person are deemed to be held by that person. If a nominee shareholder is a trust or another company rather than a natural person, this alone will not prevent a company from becoming a qualifying company.

The following special rules also apply.

  • Death or dissolution of marriage of the shareholders does not break the one-degree test, provided the company was a qualifying company and the shareholders were deemed to be “one” before the event.

  • Holders of debentures to which sections FC 1 or FC 2 apply are treated as shareholders.