December 10, 2017

Allocating shares to directors at your startup

Allocating shares to directors at your Australian company

Updated: 8 December 2019

Allocating shares to directors? Here are some useful tips to help you.

1. Shares instead of a director's service fee?

If you have launched a business with another director and with little or no funding,  it is likely that you have  thought about shares taking the place of a director's service fee, at least in the early stages. 

You can get a director's consent so they can receive shares in lieu of a director's service fee. and document this in an agreement.

2. A written agreement

It's a good idea to get a directors consent in writing to receive shares in lieu of a fee for services in the initial stages. A director's service agreement or a founders agreement is a good place to do this.

3. Shares not mandatory

Are you considering allocating shares to a new director that has come on board after the company has been set up?

While a director does not have to be to shareholder, it does make sense to allocate shares to a director to incentivise them to work towards the long term growth and success of the company. 

4. The share allocation

To complete the share allocation,  you may need to refer to your existing constitution or shareholder agreement as they will usually spell out requirements for the share allocation.

Below are the items you'll need to cover off for the share allocation:

  • Application form - a share application form for the director to apply for the shares
  • Allotment resolution - to record a decision made at a meeting to allocate the shares; and
  • Share certificate - a certificate that is given to the director that records the shares allocated

Do you have questions or comments about allocating shares? Be sure to leave them below. 

I wish you success in your ventures!

About the author 

Vivian Michael

As founder and lawyer at Michael Law Group, Vivian advises Australia's top entrepreneurs on business and employment matters. Clients benefit from Vivian's commercially focussed and pragmatic legal advice, business experience, and commitment to deliver the best quality business legal services to her clients.

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