A disposal of shares is any event that ends your ownership of shares in a company: selling them, gifting them, transferring them to family, having the company buy them back, or passing them on through your estate. In a private (Pty Ltd) company, every disposal of shares must follow the company’s constitution, any shareholders agreement and the Corporations Act 2001 (Cth). Most disposals also trigger capital gains tax.
Most people only look into this when they already want out. A co-founder has gone quiet, a relationship has ended, or you’d simply like your money back. That’s the worst moment to find out the other directors can say no for any reason. The good news? Once you know the order of steps, it’s mostly paperwork.
- Disposal means more than selling. Gifts, family transfers, buy-backs and transfers on death all count as a disposal of shares, legally and for tax.
- Private company directors can refuse to register a transfer. Under the replaceable rules they don’t even need to give a reason, unless your constitution says otherwise.
- Your shareholders agreement decides who gets first dibs. Pre-emptive rights commonly require you to offer your shares to existing shareholders before anyone else.
- ASIC needs to know within 28 days. Proprietary companies must notify member changes after updating their register, and late fees apply automatically.
- Giving shares away doesn’t dodge tax. The ATO treats a gift as a sale at market value, so a CGT bill can land even when no money changes hands.
Need specialised advice regarding your company?
Contact a Lawpath consultant on 1800 529 728 to learn more about company registration, customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.
What counts as a disposal of shares?
A disposal of shares happens whenever ownership moves from you to someone else, or the shares stop existing altogether. The ATO’s list of disposal events covers selling, gifting, transfers after a relationship breakdown, buy-backs, takeovers and liquidation.
Here’s how each route works in a Pty Ltd company, and who has to say yes.
| Disposal route | What happens | Who has to agree | Tax angle |
|---|---|---|---|
| Sale to an existing shareholder | You sell, often under pre-emptive rights | The buyer and the board | CGT on any gain |
| Sale to an outsider | A third party buys your shares | The board, plus other shareholders if pre-emptive rights apply | CGT on any gain |
| Gift or family transfer | Shares move for little or no money | The board | CGT calculated at market value |
| Share buy-back | The company buys your shares and cancels them | Directors, and shareholders for a selective buy-back | Part of the price can be treated as a dividend |
| Transmission on death | Your executor or beneficiary becomes entitled | The board registers the new holder | CGT is disregarded on death; the beneficiary inherits your cost base |
| Relationship breakdown | Transfer under a court order or binding financial agreement | The board | CGT rollover relief can apply |
| Liquidation | The company is wound up and shares are cancelled | The liquidator | Usually a capital loss |
Most founders assume “disposal” just means “sale”. In practice, the non-sale disposals cause the surprises. A quiet transfer to a spouse or family trust feels like shuffling paper. The ATO sees a taxable event.
How does disposal of shares work in a private company?
There’s no stock exchange for Pty Ltd shares, so the company’s own rules do the job a market would. Follow these steps in order. Skip one and you risk a transfer the board won’t register, or a register that doesn’t match what ASIC holds.
- Read the constitution and shareholders agreement first. Look for transfer restrictions, pre-emptive rights, drag-along and tag-along clauses, and any valuation formula. If your company has no constitution, the replaceable rules in the Corporations Act apply. A shareholders agreement sits on top of both.
- Offer the shares to existing shareholders if pre-emptive rights apply. Follow the notice periods to the letter. A skipped notice gives an unhappy shareholder grounds to challenge the sale later.
- Agree the price. Private shares have no market price. It comes from a formula in your agreement, an independent valuation, or plain negotiation.
- Sign a share sale agreement. The transfer form records that shares moved. A share sale agreement records the deal itself: price, payment timing, warranties and what happens to any loan accounts.
- Complete the share transfer form. Seller and buyer both sign a proper instrument of transfer, which the Corporations Act requires before a company can register the change. The company keeps it. It isn’t lodged with ASIC.
- Get the board to approve and register the transfer. A directors’ resolution approving the transfer of shares is the cleanest record that the board said yes.
- Update the register and certificates. Enter the new member in the register of members, cancel the old share certificate and issue a fresh one.
- Notify ASIC within 28 days. Lodge the change to members online. The clock runs from the date the register changes, and ASIC late fees apply automatically once you miss it. ASIC’s share transfer guidance walks through the online form.
- Report the tax. The seller reports the capital gain or loss in the tax return for the year the contract was signed, not the year the money arrived.
Negotiating the deal terms for the first time? Our guide to share sale agreements covers the warranties and payment clauses buyers push for.
Can directors block a disposal of shares?
Yes. In a proprietary company, the replaceable rule in section 1072G lets directors refuse to register a transfer for any reason, and many constitutions keep that power. So a signed contract with your buyer isn’t the finish line. If the board refuses, your buyer isn’t a shareholder.
Our advice: get the board’s in-principle support before anyone pays for a valuation or legal review. It costs you one conversation.
There is a limit. Directors must use the power for a proper purpose. Refusing every transfer to trap a minority shareholder can support an oppression claim under the Corporations Act. Keep that in your back pocket for the negotiation. Don’t open with it.
What if nobody wants to buy your shares?
This is the bit nobody mentions when you’re signing up as a co-founder. Private company shares are hard to sell. Outsiders rarely want a minority stake in a business they don’t control. Realistically, your buyer is one of three people: the other shareholders, the company, or an acquirer buying the whole business.
If the other shareholders won’t buy, ask the company to. A share buy-back is legal as long as it doesn’t materially prejudice the company’s ability to pay its creditors. A selective buy-back (just your shares) needs shareholder approval by special resolution, and you can’t vote on it. A share buyback agreement documents the terms, and our explainer on share buy-backs for SMEs covers the approval steps.
Here’s the uncomfortable truth. Without a shareholders agreement, you have no automatic right to be bought out. No put option, no deadlock clause, no valuation formula. You’re negotiating from scratch, and the other side knows it.
What are the tax consequences of a disposal of shares?
Almost every disposal of shares is a capital gains tax event. You make a capital gain if what you receive is more than your cost base, which is what you paid plus the costs of buying, holding and selling. If you’ve held the shares for at least 12 months as an individual or through a trust, you can halve the gain. Companies don’t get that discount.
Gifting shares: a worked example
Say you paid $20,000 for your shares years ago. You transfer them to your adult daughter for nothing when they’re worth $120,000.
The ATO treats that as if you sold them for $120,000. Your capital gain is $100,000. After the 50% discount, $50,000 gets added to your taxable income that year. You received nothing, and you still owe tax.
Your daughter’s cost base starts at $120,000, so she’s not taxed on that growth again. That’s fair on paper. It’s still a nasty surprise if nobody planned the cash to pay the bill.
Other tax traps worth a conversation
- Small business CGT concessions. If the company runs an active business and you meet the tests, these concessions can shrink or wipe out the gain. Check eligibility with your accountant before you sign, because the structure of the deal affects it.
- Buy-backs split into two parts. In an off-market buy-back, part of the price can be treated as a dividend and part as capital proceeds. Model both before you agree on a number.
- Loan accounts. If you owe the company money when you leave, Division 7A can turn that loan into an unfranked dividend. Clear or document it as part of the exit.
- Landholder duty. Stamp duty on ordinary transfers of unlisted company shares has been abolished across Australia. But if the company owns land above your state’s threshold, buying a significant stake can trigger landholder duty for the buyer.
How is disposal of shares in a public company different?
If you hold listed shares, the market does most of the work. The company’s board has no say over who buys from you.
- Selling on market. You sell through a broker that’s a participant of the Australian Securities Exchange (ASX), and the broker charges a fee for the trade.
- Off-market transfers. Gifts, family transfers and deceased estates go through the company’s share registry using a standard transfer form, without a broker. Each registry has its own form and identity requirements, so download it from the registry’s website rather than an old PDF.
- Moving brokers. Shares held under a CHESS holder identification number (HIN) move broker to broker with a transfer request to your new broker. Issuer-sponsored holdings (SRN) sit with the registry and are moved with a registry form. ASX is replacing CHESS in stages, but nothing changes for investors yet.
The tax rules are the same for listed and unlisted shares. A gift of listed shares is still a disposal at market value.
Sale, buy-back or gift: which disposal of shares route fits?
Most exits land on one of three routes. Pick based on who has the cash and what you’re trying to achieve.
| Sale to a shareholder or outsider | Company buy-back | Gift or family transfer | |
|---|---|---|---|
| Best when | Someone wants your stake and can pay | The company has spare cash and nobody else will buy | You’re planning succession or restructuring within a family |
| Main documents | Share sale agreement, transfer form, board resolution | Buy-back agreement, shareholder resolution, ASIC forms | Transfer form, board resolution, valuation |
| Biggest risk | Board refuses to register the buyer | Breaching the creditor-protection rules | A CGT bill with no cash to pay it |
| ASIC notice | Change to members within 28 days | Buy-back notices plus change to share structure | Change to members within 28 days |
What we see in Lawpath consultations
Lawpath lawyers and accountants talk to business owners about shareholder exits every week. A few patterns come up again and again.
The exit gets tangled with money owed. A departing shareholder has often lent the company money, or borrowed from it, with nothing in writing beyond a line in the balance sheet. The share price and the loan then become one messy argument. Where this goes wrong is treating them separately. Settle the shares and the loan in the same deed, or the second fight starts the day after the first one ends.
A constitution alone doesn’t give you an exit route. Owners who want to buy out or remove a shareholder regularly discover they have a constitution but no shareholders agreement. The constitution covers how the company runs. It rarely forces anyone to sell. If you’re unsure which document does what, our comparison of a company constitution and a shareholders agreement sets it out.
Deals stall waiting for a valuation nobody required. A formal valuation isn’t a legal requirement for a private share sale. Our advisers commonly suggest agreeing on a price or formula first, and only commissioning a valuation if the other side insists or the numbers become the sticking point. That can save weeks and a few thousand dollars.
Internal records get updated, ASIC doesn’t. The register and certificates are done, and then everyone moves on. Months later a bank or investor searches ASIC and finds the old shareholder still listed. Fixing that means late fees plus an awkward explanation, right when you need the deal to look tidy.
If your situation involves a dispute, a hostile director or a significant sum, a fixed-fee review from a business lawyer costs far less than unpicking a bad exit.
Your disposal of shares checklist
Copy this before you start. Tick each item off in order.
- Constitution and shareholders agreement read, transfer clauses flagged
- Board’s in-principle support confirmed
- Pre-emptive rights offer sent and notice period finished (if required)
- Price agreed, with valuation evidence kept on file
- Loan accounts between you and the company settled or documented
- Accountant has modelled the CGT and checked concessions
- Share sale agreement and transfer form signed by both parties
- Directors’ resolution passed and transfer registered
- Register of members updated, old certificate cancelled, new certificate issued
- ASIC notified within 28 days of the register change
Frequently asked questions
What does disposal of shares mean?
Disposal of shares means any event that ends your ownership of shares. Selling is the obvious one, but gifting, transferring to family, a company buy-back, a transfer on death and the company being liquidated all count. For tax, almost every disposal is a CGT event.
Is transferring shares the same as selling them?
Not quite. A sale is a transfer where the buyer pays an agreed price. A transfer can also happen for free, such as a gift or a family restructure. Both are a disposal of shares, both need a signed transfer form, and both are treated as happening at market value for tax purposes if the price isn’t at arm’s length.
Do I pay tax if I transfer shares to a family member for free?
Very likely, yes. The ATO treats a gift of shares as a disposal at market value on the day you give it. If the shares have grown in value, you’ll have a capital gain to report, even though you received no money. Plan how you’ll fund the tax before you transfer.
Can I sell my shares in a private company to anyone?
Not freely. Your shareholders agreement may require you to offer the shares to existing shareholders first. Under the replaceable rules, directors of a proprietary company can also refuse to register a transfer for any reason. Get the board’s support before you commit to an outside buyer.
How long do I have to tell ASIC about a share transfer?
A proprietary company must notify ASIC within 28 days of updating its register of members. You do this online through ASIC’s change to company details process. Miss the deadline and a late fee applies automatically, with a higher fee once you’re more than a month late.
Is there stamp duty on a share transfer in Australia?
Not on an ordinary transfer of shares in an unlisted company. Those duties have been abolished nationally. The exception is landholder duty: if the company owns land above your state’s value threshold, a buyer acquiring a significant interest may pay duty as if they’d bought the land.
Can a company buy back my shares?
Yes, if the buy-back doesn’t materially prejudice the company’s ability to pay its creditors and follows the approval process in the Corporations Act. Buying back only your shares is a selective buy-back, which needs a special resolution of shareholders. You can’t vote on it yourself.
What happens to shares when a shareholder dies?
The shares pass to the executor, who can ask to be registered or transfer them to a beneficiary, subject to the board’s approval. CGT is disregarded at death. The beneficiary takes on the deceased’s cost base and only pays tax when they later dispose of the shares.
Ready to make it official?
You’re not stuck, and you’re not behind. Most share disposals come down to a handful of documents and one ASIC update, done in the right order. You’ve now got the order.
Start with the document that makes it real: create your Share Transfer Form today.
