In many family-owned businesses, the distinction between ownership and control can become blurred. The same individual may own shares in the company, sit on its board and participate in its day-to-day management.
This can create the common misconception that owning a business necessarily gives a person the right to determine how it operates.
However, company law distinguishes between ownership of shares and control of the company’s affairs. Understanding that distinction is particularly important in family businesses, where formal corporate roles and informal family arrangements often overlap.
In many family businesses, a person may wear three separate hats, as a shareholder, as a director and as an employee or manager. Those roles often overlap in practice, but they are legally distinct. A shareholder owns shares. A director manages the company and owes duties to the company. An employee or manager performs work in the business under their employment terms, position description or delegated authority. Confusion often arises when a person assumes that rights or influence in one role automatically give them authority in another.
Shareholders, directors and employees have different roles
Shareholders are owners of the company’s shares. They may be entitled to profits in the form of dividends, growth in the value of their investment and the market value of the shares on an exit.
Directors, however, are responsible for managing the company and exercising its powers. They are subject to duties under the Corporations Act 2001 (Cth), including the duty under section 180 to exercise due care and diligence in their role.
A director must act in the best interests of the company. In doing so, the director may need to consider the interests of shareholders, creditors, employees and other stakeholders, but those interests do not replace the director’s duty to the company.
An employee or manager has a different role again. Their authority usually comes from their employment contract, job title, position description, delegated authority or the practical responsibilities given to them by the company. They may be responsible for staff, customers, suppliers, operations or finances, but that does not necessarily mean they control the company in a legal sense or have any ownership interest in it.
Family Businesses
In family businesses, the distinction between ownership, control and employment can be particularly difficult to identify. Family members may hold formal roles as directors, shareholders or trustees while also participating informally in the management and operation of the business.
A person may be treated as an owner because they work in the business, or as a decision-maker because they are senior within the family, even though their legal role may be limited. That can create uncertainty about who is entitled to make decisions, who is accountable for those decisions and who benefits from the value of the business.
This issue was considered in Van and Aixin (No 2) [2026] FedCFamC1F 542. In that case, the husband was a director of several companies within a family business group and was significantly involved in their management and day-to-day operations.
The dispute concerned whether that involvement demonstrated a genuine ownership interest or effective control over the companies and associated assets. The wife argued that the husband exercised substantial control, while the husband maintained that his role was managerial and that he held no beneficial ownership interest.
In considering the issue, the Court examined the practical operation of the family business structure, including the governance, administration and management of the companies, together with the extent to which the husband benefited from the companies and associated trusts.
The case demonstrates that formal titles alone do not determine ownership or control. A person’s role as a director, employee, shareholder or trustee does not, by itself, determine whether they own or control the company or its assets. Instead, the Court will consider the substance of the arrangement, the person’s legal rights and the way decisions are made in practice.
For family businesses, this highlights the importance of looking beyond formal company records to how the business operates in practice. A person may be heavily involved in managing a family enterprise without necessarily owning the underlying assets or being entitled to treat them as their own.
What does “control” mean?
Ownership and control will often overlap in a company, particularly in family businesses, but they are not the same concept.
Under s 50AA of the Corporations Act 2001 (Cth), an entity controls another entity if it has the capacity to determine the outcome of decisions about that entity’s financial and operating policies.
The focus is on the practical influence the entity can exert, including any established patterns of behaviour, rather than simply its formal legal rights.
In practical terms, control is concerned with who can influence or determine key decisions. This may include decisions about funding, distributions, major contracts, asset sales, appointments, access to company resources and business strategy. The answer may not always be found in job titles or shareholdings alone.
How is control documented?
Control arrangements are often established through the company’s constitution and shareholders agreement.
A constitution may set out the directors’ powers, voting rights and governance procedures. A shareholders’ agreement deals with board structures, voting rights, share transfers and deadlocks.
These documents should be reviewed together to ensure the legal structure reflects the parties’ commercial intentions.
Keeping ownership, control and employment roles separate
For directors and managers of family businesses, one of the most significant challenges is recognising which role a person is acting in when decisions are made. A person may have one set of rights as a shareholder, another set of duties as a director, and a different scope of authority as an employee or manager. Each role should be understood separately.
Before making an important decision, directors should consider whether they are acting as an owner or on behalf of the company, whether the decision is really in the company’s best interests, and what impact it may have on the company’s financial position. They should also ensure that the decision can be properly justified and documented.
Ownership of a company does not confer unlimited authority over its affairs, and holding shares does not relieve a director of their duties to the company. Equally, working in the business does not necessarily mean a person has ownership rights or legal control. The closer the relationship between ownership, management and family, the more important it becomes to maintain clear boundaries between these roles.
In a family business, the same person may be a shareholder, director and employee or manager, but each role carries different rights, responsibilities and limits. Problems often arise when those roles are treated as interchangeable. Clear documents, clear decision-making processes and clear role boundaries help reduce disputes and make the business easier to manage.
If you need assistance with your company’s ownership or control structure, our Corporate + Commercial team can help. Please contact Ersel at ersel@morganenglish.com.au.
