The shares in unlisted companies owned by SMSFs can be transferred or sold to their members. However, the main issue here is the valuation of these share when they are sold to the SMSF members. The SMSF trustees need to make sure the disposal of these shares is in an arm’s length transaction.
The trustees must ascertain a market value using numerous sources and methodologies:
A) Net Asset Backing
B) recent transfers / sales / purchase prices confirmed by the registry / company secretary
C) a market valuation as determined by the directors of the private company
D) a review of the assets held
Normally the most common approach is net assets backing method which is calculated by using the net assets of the company divided by the total share issued.
No matter which method is used, the trustees need to document its sources, methodology for sales price so it is set at an arm’s length price to a related party. In other words, would the SMSF sell at the same price if it received a similar offer from a unrelated party.
Should you have any questions in regards to disposal of shares in unlisted companies owned by SMSFs, please feel free to contact us on 03 9557 4079 or firstname.lastname@example.org