A dividend access share carries a right to dividends at the directors’ discretion, usually with no voting rights and no entitlement to capital on wind-up. It is a profit-routing tool, most often used inside family trust structures, not a standard way to grant equity to a finance hire.
A share class built for one thing: routing dividends
Directors of a private company can declare dividends to different share classes at different rates, and a dividend access share is the class created to make that flexible. It sits alongside the ordinary shares but is stripped down to almost nothing except the dividend right.
The most common use is inside a family trust structure, where the arrangement lets directors direct profit to whichever family member or entity sits in the lowest tax bracket that year, without disturbing the voting control the founders hold through their ordinary shares. Arrangements like this attract scrutiny from the ATO under Division 7A and related anti-avoidance rules, which is a compliance conversation for an accountant, not a recruiter, to run.
Where it can touch an employee equity structure
A dividend access share provided to a genuine employee, including a senior finance hire, in respect of their employment is generally an ESS interest under the same ATO employee share scheme rules that apply to ordinary shares and options. If the arrangement is eligible, the same start-up concession that reduces the taxable discount to nil for an ESOP grant can apply here too.[1]
I set out how that concession works for a standard ESOP pool in more detail.
In practice I very rarely see a dividend access share used as the equity vehicle for a first finance hire or a first CFO. A standard option pool under an ESOP is simpler to administer, easier for a candidate to value, and does not carry the Division 7A structuring overhead that makes a dividend access share worth the paperwork inside a family group.
Common questions
What is a dividend access share?
A share class that carries a right to dividends declared at the directors' discretion, typically with no voting rights and no entitlement to a share of surplus assets if the company winds up. It lets a company direct profit distributions to a specific holder without affecting control.
Are dividend access shares mainly a startup tool?
No. They show up most often inside family trust or closely-held company structures, to route dividends to family members in lower tax brackets. They are a general corporate structuring tool, not something specific to venture-backed startups.
Can a dividend access share be given to an employee?
Yes, and if it is provided in respect of employment it generally falls under the ATO's employee share scheme rules, including potential access to the start-up concession. In the finance roles I place, a standard ESOP option grant is the far more common structure.
Do dividend access shares attract ATO scrutiny?
Arrangements that route dividends to related parties can attract attention under Division 7A and general anti-avoidance provisions, which is why they are set up with accounting and legal advice, not informally.
References
- The ATO's eligibility conditions for the ESS start-up concession, including the 15% discount cap on shares and the three-year minimum holding period, are set out on its start-up concession page, and they apply to any eligible ESS interest, not only ordinary shares.
These guides set out how we see it, drawn from the searches we run and the finance leaders we place. They are general information about the market, not financial, accounting or legal advice, and they are no substitute for advice on your own circumstances.