Booklet: Company Title Essentials (Chapter 2 – Purchasing and selling shares in a company title building)

Company Title Essentials booklet

Below is Chapter 2 of our ‘Company Title Essentials’ booklet. To read the other chapters of our booklet, click the links below:

Purchasing and selling shares in a company title building

Purchasing shares

Before purchasing shares in a company, prospective buyers should ensure that they do the following things:

Read and understand the constitution and the house rules.  Purchasers should have a clear understanding of the following:

  • Exclusive use and occupation of a flat;
  • Their duties as a shareholder;
  • Their potential financial liabilities to the company by way of levies and interest accrued on unpaid levies; and
  • The extent of their ability to lease their flat and sell their shares. 

Explore appropriate financing options.  In this regard, it is worth noting that it can be more difficult to obtain finance by way of a mortgage over shares than it is to obtain finance by way of a mortgage over land.  Typically, mortgagees require a personal guarantee by the shareholder and recognition of the security interest in the shares by the company. The mortgagee will usually retain the share certificate.

Conduct a pre-purchase inspection of the flat associated with the relevant shares.  This will help to ensure that the purchaser has a clear picture of the likely repair and maintenance costs that will be incurred in the short to medium term.

Obtain a company inspection report.  This will help the purchaser to inform themselves about the state of the management of the company and its financial position, and any recent issues relating to the building.

It is a good idea to get an experienced solicitor to review the contract for sale, the constitution and the house rules.

The process for purchasing shares in a company can be rather different from the process associated with the purchase of land.  For example, constitutions generally require that prospective shareholders obtain the consent of the board prior to the registration of their shares.  This generally requires purchasers to submit written references to the board, attend an interview with board members, and to affirm that they have read and agree to be bound by the house rules and the constitution.  The process of submitting references, attending interviews, and agreeing to the constitution and house rules typically takes place between exchange and settlement. Accordingly, settlement is almost always conditional on obtaining board approval.  

Getting a loan to buy a company title home unit

Company title conveyancing is a specialised field.  Our conveyancing team offers a checklist for pre-purchasers that helps them navigate the issues that tend to arise.  

Vendor’s pack

It is important that all incoming purchasers are given sufficient information about the company to allow them to determine whether they want to buy shares before they enter into a contract to do so.  Purchasers should not be caught by surprise about levies that are due to be paid or major capital works that are on the horizon.  

Companies can manage this issue by developing a vendor’s pack.  A vendor’s pack is a set of documents that are distributed by vendors to prospective purchasers on a confidential basis to help them develop an understanding of the governance of the company and their likely liabilities as shareholders. 

 The vendors pack should include a copy of:  

  • The constitution;  
  • The house rules;  
  • Any minute’s approving renovations which may be taking place after the sale;  
  • Any minute’s approving levies that may be payable after the sale;  
  • Any minutes concerning future capital works; and  
  • Any significant liabilities that the company has taken on, such as loans secured against the property or by circulating security interest.  

Companies interviewing incoming shareholders may wish to require that all persons being interviewed have first received and reviewed a vendor’s pack.  

It is a good idea to have potential purchasers sign a confidentiality acknowledgment before receiving a vendor’s pack to ensure they do not disclose the information in the pack to a third party or use it otherwise than for the purposes of deciding whether to purchase the shares.  

Selling shares

The Australian Securities and Investments Commission has issued a Regulatory Guide which allows shareholders who wish to sell their shares in a company title company to avoid some of the onerous requirements associated with the marketing and sale of shares in other types of companies.  

Shareholders who wish to enjoy the benefit of a reduced compliance burden will need a contract which satisfies the requirements set out in the Regulatory Guide. 

To download a PDF of our booklet, enter your email below.

 

The information contained in this post is current at the date of editing – 3 April 2024.