Apportioning shares between partners in a LAQC

Question from Ken updated on 2nd April 2007:

I am about to set up an LAQC and am not sure how to aportion the shares between my partner and I. As I am the higher earner we are thinking of a 99% to 1% split....can I change this split in the future easily or is there a tax/cost implication ? K

Our expert responded:

This is a great question. Shares in an LAQC should be apportioned between partners on the basis of their income and whether one earns more than $60,000 per annum. There is no point in one partner owning 50% of the shares when their income is say $35,000 and their partner is earning $70,000. The benefits arising from an LAQC in this case will be limited as a result of the shareholding. So, assuming that 99 shares for you and 1 for your partner is right for your particular circumstances, you can make changes to the shareholding in future under one condition. And that condition is that the common ownership of the company does not change by more than 34% in a financial year.

So, if for example, you wanted to move the shareholding to 50:50, you would need to change the shareholding over two years. In the first year, you would transfer say 25 shares from yourself to your partner, and then in the following year, transfer another 24 shares to make the shareholding 50:50 at the end of two years. If you did it all in one go, you can run the risk of the losing the LAQC status which will mean you lose the ability to claim the losses from the company against your personal income in that year. You would have to re-apply for LAQC status for the following year.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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