Company constitution to replace a family trust, drafted by Melbourne lawyers.

A standard constitution assumes a handful of ordinary shares, a majority that can amend it by special resolution, and directors who declare dividends as they see fit. Each of those is a discretion over members' rights. A family that wants a founder to keep control, children to own in unequal shares, and in-laws kept out, has historically done all of that through the trust deed and the appointor. In a company it has to be done through share classes, transfer restrictions and a shareholders agreement, and under the Bill it has to be done without a power that can significantly vary anyone's existing rights.

Different classes with different, defined rights are permitted: a class that carries votes and one that does not, classes with fixed proportions of dividends and capital, redeemable preference shares with a stated return. What the test is written to catch is the dividend access share, where the board decides each year which class is paid and how much, and any constitution that lets a majority rewrite the rights of a minority. The dividend-splitting constitutions that have been sold as a substitute for a discretionary trust are the ones most likely to fail the test; whether a particular one does is a drafting question, and it is answered share class by share class.

Every individual with a direct or indirect interest in the company just after the transfer must have been both a beneficiary and a member of the family group just before. The shareholders agreement has to stop a share passing to someone who was not, at least for the period the test runs, or the roll-over is at risk after the fact. Transfer restrictions in the constitution do that work.