Below is part 2 of our governance guide for family businesses. To read the other parts of this series, click the links below:
As the owner of a family business, you pour your heart, time and capital into building something lasting. Yet without crystal-clear member rights and documented governance, family disagreements can erode your control, turning equity into a battleground. In Part 1 we covered why governance matters, now let’s focus on the role of members and owners, and how to protect what you’ve built.
Who are members and what powers do they hold?
Members (also called shareholders) are the people who own the equity in your company. Under the Corporations Act 2001 (Cth) (the Act), members exercise ultimate control through their right to appoint and remove directors. A member can be an individual, a corporate body or even a government entity.
For private companies limited by shares, you must have at least one member, with a maximum of 50 non-employee members. Each member typically holds one vote per share, although different share classes can create different voting rights. This is where things get interesting (and potentially complicated) for family businesses.
What members don’t have
Here’s something that surprises many family business owners: as a member, you own all or part of the company, but you don’t have any direct ownership interest in the company’s underlying assets. The company has a separate legal existence, and the company’s assets belong to the company itself.
Also important: members generally don’t owe fiduciary obligations to other members or to the company. This means you can openly vote in your own personal interest. Directors and officers face much stricter duties, but as a shareholder? You’re free to look after yourself.
Your rights as a member
The Act gives members specific rights, regardless whether your company has adopted a constitution or not. Understanding these rights is essential for family business owners who want to maintain appropriate control.
Access to company information
Members have the right to access certain company records, including the share register. The share register contains the name and address of each member, the number of shares held, share classes, and amounts paid and unpaid on shares. You can request a copy in writing, and the company must provide it within 7 days, free of charge.
However, you can’t request access for improper purposes like soliciting donations, approaching members as a stockbroker, or gathering information about members’ personal wealth.
You also have the right to request a copy of the company’s constitution (if one exists). The company must provide this within 7 days, though they may charge a fee.
Calling meetings and passing resolutions
Members holding at least 5% of total votes can call a general meeting. This provides a critical check on director power, which is especially important in family businesses where directors and members are often the same people wearing different hats.
At general meetings, members pass resolutions by voting in their capacity as owners. An ordinary resolution requires a simple majority, while a special resolution needs 75% voting in favour. Special resolutions are only required where stated in the constitution or mandated by law.
It’s worth noting that private companies are no longer required to hold annual general meetings, unlike publicly listed companies. Many family businesses operate informally without regular meetings, but this can create problems down the track.
Dividend rights
When your company earns a profit, that money can be reinvested in the business, paid to members as dividends, or both. As a member, you have a potential right to dividends, though this isn’t automatic, it depends on the company’s financial position and director decisions.
Limited liability protection
As a member, you’re not personally liable for the company’s debts. Your liability is limited to any outstanding amount not yet paid on your shares. For example, if you agreed to pay $1 per share and have only paid 60 cents, you’re liable to pay the remaining 40 cents when requested by the company – but nothing more.
This limited liability is one of the key reasons families use companies for business operations and as trustees of family trusts. For more on trust structures, see our guide on how to safeguard family trusts for the next generation.
Constitution vs shareholders’ agreement: which do you need?
Many family business owners ask whether they need a constitution, a shareholders’ agreement, or both. Our strong preference is for a tailored constitution as the primary governance document, supplemented by a shareholders’ agreement for specific issues like exits, disputes and restraints.
A constitution binds all members automatically (including new members who acquire shares), can be modified by 75% vote rather than unanimous consent, and acts as a statutory contract that helps directors manage conflicts. Shareholders’ agreements handle matters like buy-sell arrangements, tag-along/drag-along rights, and family-specific dispute resolution.
The ideal approach? A comprehensive constitution supplemented by a focused shareholders’ agreement addressing specific family and commercial issues.
Call us on 1300 654 590 or email us to discuss which approach suits your circumstances. Learn more in our detailed comparison of company constitutions v shareholders’ agreements.
Common pitfalls for family business owners
In our decades advising family enterprises, we see the same member-related problems repeatedly:
Informal decision-making
Family businesses often make major decisions around the kitchen table, not the boardroom. Someone says ,”let’s buy that property” or “I think we should expand into Queensland,” everyone nods, and off you go. No formal resolution. No minutes. No documentation.
This informality feels natural among family members, but it creates enormous problems later. When disputes arise (and they do), there’s no clear record of what was agreed allowing these decisions to be challenged.
Confusion between member and director roles
In many family businesses, the same individuals act as both shareholders (members) and directors, but those roles are legally distinct.
For example, Mum and Dad each hold 50% of the shares in the company. Their three adult children also hold minority shareholdings, and all five family members sit on the board as directors.
At times, the family meets informally and makes decisions about the business – without clearly identifying whether they are acting as shareholders or directors.
This overlap creates real risk.
As shareholders, the family can approve fundamental changes to the company and exercise voting rights based on their shareholdings. As directors, however, they must act in the best interests of the company, exercise care and diligence, and properly manage conflicts of interest.
A common red flag is where the family agrees – over dinner – that the company will lend money to one of the children to help them buy a home.
That may feel like a “family decision”, but legally it is a board decision. Each director must consider whether the loan is in the best interests of the company, whether it is on commercial terms, and whether they have a conflict of interest that needs to be disclosed and managed.
If that process is not followed, the decision may be invalid and the directors risk breaching their duties, exposing themselves to personal liability.
For more on director duties in family businesses, see family business: what directors need to know.
Unclear share structures in corporate trustees
Many family businesses operate through a discretionary trust with a corporate trustee. The trustee company might have just one share worth one dollar, held by the original family member.
When the original shareholder dies leaving three children, you immediately have a problem. How do you divide one share amongst three people? Family disputes erupt over who controls the company that controls the trust that owns the business.
The solution is establishing the corporate trustee with an easily divisible number of shares from the start – we typically recommend 300 shares, which divides neatly into 2, 3, 4 or 5. If your corporate trustee already exists with one share, you can split that share to create the right structure.
Securing ownership for the next generation
Effective member governance isn’t just about today. It’s about ensuring smooth succession when you’re ready to step back or when the inevitable happens.
Document everything
Adopt a formal constitution that reflects how your family wants the business run. Include provisions for:
- Share transfer restrictions (right of first refusal to family members)
- Valuation methodologies for internal transfers
- Different share classes if some family members work in the business and others don’t
- Deadlock resolution when members can’t agree
- Exit mechanisms for family members who want out
Align with estate planning
Your member rights and shareholdings must align with your Will and succession plan. If you want your son to control the business, ensure your Will transfers the controlling shares to him, and that your constitution permits this transfer.
Many families discover too late that their shareholder structure doesn’t match their estate planning intentions. The Will says one thing, the constitution says another, and the lawyers are the only winners.
Plan for the ‘Seven Ds’
Buy-sell agreements address what happens when a member faces Death, Disability, Divorce, Default, Departure, Disagreement or Deadlock. These mechanisms protect both the departing member (or their family) and the continuing members.
A well-structured buy-sell agreement funded with appropriate insurance ensures the business continues smoothly while fairly compensating the departing member’s family. Without one, families often find themselves in forced business sales or bitter litigation.
How we strengthen family ownership structures
As trusted advisers to business owners and wealthy families, we specialise in member-focused governance that works for family enterprises nationwide.
We start by reviewing your current structure: Who are the members? What share classes exist? Is there a constitution, and does it reflect how decisions are really made? What happens when a member dies or wants to exit?
We then craft the right governance documents for your circumstances:
- Tailored constitutions that displace unhelpful replaceable rules and enshrine your family’s decision-making approach
- Shareholders’ agreements addressing exits, disputes and succession
- Buy-sell agreements funded through appropriate insurance structures
- Corporate trustee restructures to enable smooth succession
All fixed-fee, no surprises. We explain the jargon and help you move forward with confidence.
Whether you’re resolving ownership deadlocks, planning for the next generation, or just want certainty about who controls what, we deliver clarity that protects your legacy. Call us on 1300 654 590 or email us for a confidential review.
Continue to Part 3: Directors and the board.
The information contained in this post is current at the date of editing – 22 April 2026.
