SMSF Setup
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Private Company Shares

Investing in Private Companies within an SMSF

An SMSF can invest in private company shares as long as it’s investment strategy allows for it. A private company is an unlisted security which means there is typically no readily available market valuation. As such SMSF Trustees should ensure that every transaction with the private company is made on commercial terms and at market value. An SMSF should also consider the audit requirements that come along with it’s investments.

The different types of Private Companies

Standard Private Company

A standard private company is not listed on an exchange and has a small shareholder capacity. These companies typically sell shares to only a small group of private individuals as they focus on internal management.

Private Capital Raising

Private Capital Raising companies raise capital directly from investors rather than listing shares publicly. This type of private company actively focuses on soliciting funds from private investors by issuing new shares.

Initial Public Offering

Some private companies choose to raise capital by listing on the stock exchange, converting to a public company. However, before they are officially registered as a listed company, all shares purchased before the company is public will be treated the same as a private company.

Audit Requirements

Private Companies unalike their counterparts Public Companies, are scrutinised by auditors as the share price is not readily available.

Auditors typically request for an audited set of financial reports and a holding statement or the shareholder registry when an SMSF holds unlisted shares. A share certificate is also requested for when the SMSF initially purchases unlisted shares. 

If you are unable to provide the above documents, the auditor may accept the following supporting documents as well:

  1. Recent share sales
  2. Management reports
  3. Press releases
  4. Accountant’s letter

Failing to provide sufficient supporting documents to the auditor may result in a qualified audit. 

FAQs

Can I sell my unlisted shares to my SMSF?

No, you cannot sell your unlisted shares held in a personal capacity to your SMSF. An SMSF is only allowed to purchase listed shares and business real property from a related party.

Yes, an SMSF can sell unlisted shares to a related party however, it must be on commercial terms and at market value. This means that you cannot sell the shares to yourself and schedule payment in 6 years time. It must be the same as if a non-related party purchased the shares from the private company. Generally, using a recent share sale is best practice.