Issuing new shares is one of the most important capital and governance decisions a company can make. Whether the purpose is to admit a new shareholder, raise growth capital, incentivise key talent, or realign ownership, the process carries strategic, legal, and tax implications that need careful planning.

Below is a practical guide to the key considerations, followed by the main tax outcomes depending on how the new shareholder enters the register. Finally, we cover the question every business asks: how do you determine the value of the company before issuing shares?

A company should be clear about why new shares are being issued:

• Raising capital to fund growth
• Bringing in a strategic investor
• Admitting a business partner or family member
• Employee equity incentives
• Restructuring ownership

The purpose influences valuation, share class, rights attached to the shares, and tax outcomes.

Issuing additional shares dilutes existing shareholders’ ownership percentage.
Companies should model:

• Post‑issue cap table
• Impact on control and decision‑making
• Dilution impact on existing shareholder value

Documents may contain:

• Pre‑emptive rights
• Restrictions on issuing new shares
• Requirements for shareholder approval
• Procedures for valuing new shares

These must be followed to avoid disputes.

New shares may be:

• Ordinary
• Non‑voting
• Redeemable
• Preference shares

Rights must align with the commercial objective and remain consistent with Corporations Act requirements.

When a new shareholder enters the company, the tax treatment depends largely on whether they pay market value for the shares. There are three broad pathways:

When the new shareholder pays full market value:

• The company receives capital (improving equity position).
• The shareholder’s cost base is the amount they paid.
• There is no tax problem for the shareholder, because they have paid for what they receive.
• Existing shareholders may experience value dilution, but no direct tax consequences arise.

This is the cleanest, lowest‑risk approach.

If the shares are issued at a discount (including for free), the difference between:

• Market value of the shares, and
• Consideration paid

is treated as a deemed unfranked dividend to the new shareholder.

Tax consequences for the shareholder:

• They are fully assessed on the deemed dividend in that financial year.
• The dividend is unfranked, meaning no franking credits.
• Their cost base for CGT is the market value (not the amount they paid).

This outcome is generally undesirable because:

• The shareholder pays tax without receiving cash.
• The company cannot frank the dividend.
• It is administratively complex and often triggers ATO scrutiny.

Under this structure:

• The company lends money to the shareholder to subscribe for shares at market value.
• Shares are fully paid and issued at full market value.
• The loan must be on commercial terms to avoid Division 7A issues (if the company is private).
• The shareholder typically repays the loan using dividends or proceeds from liquidity events.

This approach:

• Avoids deemed dividend issues because shares are not issued at a discount.
• Allows the shareholder to obtain equity without upfront cash.
• Requires careful documentation and compliance with loan requirements.

Often used for:

• Employees
• Family members in succession planning
• Key strategic managers

There is no single “right” method—it depends on the size, maturity, and nature of the business. Here are the common approaches:

DCF values the business based on future projected cash flows, discounted to present value.
Best for:

• Growing businesses
• Businesses with predictable cash flow
• Capital‑intensive operations

Pros: theoretically robust, considers future expectations
Cons: highly sensitive to assumptions; requires reliable forecasts

This applies a multiple (e.g., EBITDA or revenue multiple) observed in comparable transactions or industry benchmarks.

Best for:

• Retail, service, and trading businesses
• Industries where transaction multiples are widely published

Pros: market‑aligned, fast, practical
Cons: quality depends on the availability of comparables

Values the net assets of the business at market value.
Best for:

• Asset‑heavy businesses (property, manufacturing)
• Businesses with low earnings
• Companies being wound up
  Pros: straightforward, balance‑sheet focused
  Cons: ignores intangible value and growth

A third‑party valuation adds independence, reduces risk of tax disputes, and provides credibility to all parties.

Issuing new shares is far more than an administrative exercise—it reshapes the ownership, governance, tax position, and commercial future of the company. Businesses should:

• Understand the strategic purpose
• Structure the share issue to avoid unintended tax results
• Choose an appropriate valuation method
• Consider independent valuation where needed

With the right planning and advice, companies can bring in new shareholders confidently and tax‑effectively.