{"id":18825,"date":"2026-10-21T14:23:56","date_gmt":"2026-10-21T03:23:56","guid":{"rendered":"https:\/\/chuatan.com.au\/?p=18825"},"modified":"2026-10-21T14:23:56","modified_gmt":"2026-10-21T03:23:56","slug":"sibling-wants-to-sell-family-business-share-buy-out","status":"publish","type":"post","link":"https:\/\/chuatan.com.au\/en\/sibling-wants-to-sell-family-business-share-buy-out\/","title":{"rendered":"When a Sibling Wants to Sell Family Business Shares: Buy-Outs"},"content":{"rendered":"<div class=\"ct-article\" data-no-translation>\n<p>Sooner or later, in many family businesses, one sibling wants out. Perhaps she has moved to Hong Kong and wants capital to buy a home there. Perhaps he has never worked in the business and would rather have cash than shares that pay irregular dividends. Or perhaps the siblings simply no longer get along.<\/p>\n<p>Siblings naturally want different things: control, income, or to leave. The problem is that family companies are rarely built for anyone to leave. Shares in a private company have no ready market, the other siblings may not have the money to buy, and nobody agreed in advance on the price.<\/p>\n<p>This article explains how to plan for an exit before it is needed, how valuation works, the ways a buy-out can be funded, and the general tax points to raise with your accountant.<\/p>\n\n<h2>Plan liquidity before anyone needs it<\/h2>\n<p>The best time to agree how a sibling can leave is when nobody wants to. Once someone has decided to exit, old grievances tend to surface in arguments about price.<\/p>\n<p>An exit framework, usually set out in a shareholders&#8217; agreement, answers four questions:<\/p>\n<ul>\n<li><strong>Who may leave, and when?<\/strong> For example, any shareholder may give notice to sell after a minimum holding period, or only on specified events such as retirement, moving overseas or ceasing to work in the business.<\/li>\n<li><strong>Who has the first right to buy?<\/strong> Usually the other shareholders in proportion to their holdings, then perhaps the company itself through a buy-back, and only then an outside buyer approved by the family.<\/li>\n<li><strong>How is the price set?<\/strong> By a method agreed in advance (see below).<\/li>\n<li><strong>Where does the money come from, and over what period?<\/strong> A buy-out that the remaining family cannot fund simply leads to a dispute.<\/li>\n<\/ul>\n<p>Some families also build a cash reserve or pay a regular dividend so passive owners do not feel trapped.<\/p>\n\n<h2>What if there is no agreement?<\/h2>\n<p>Without a shareholders&#8217; agreement, the exiting sibling generally has limited options. In a proprietary company, the directors may refuse to register a transfer of shares for any reason under the replaceable rules (section 1072G of the Corporations Act 2001), unless the constitution says otherwise, so selling to an outsider may be blocked. The remaining siblings are not obliged to buy. A complete breakdown can end in court, which is slow and damaging to the family.<\/p>\n\n<h2>Valuing the shares<\/h2>\n<h3>Independent valuer<\/h3>\n<p>Many agreements provide for an independent valuer, often an accountant with business valuation experience, appointed by agreement or by a professional body if the parties cannot agree. The agreement should state the valuation date, the basis (for example fair market value as a going concern) and whether the decision is final.<\/p>\n<h3>Formula<\/h3>\n<p>Some families prefer a formula, such as a multiple of average profits or net asset value with property at market value. Formulas are predictable but can become unfair as the business changes, so review them each year.<\/p>\n<h3>Minority discount<\/h3>\n<p>A buyer of a small minority stake in a private company would normally pay less per share than its proportionate share of the whole company, because the minority holder cannot control dividends or management. Whether a discount applies to a sale between siblings is a major source of disagreement. The agreement should say clearly whether the price is a pro-rata share of the whole value or a discounted market value of the parcel.<\/p>\n\n<h2>Funding a buy-out<\/h2>\n<h3>Dividends and retained profits<\/h3>\n<p>Dividends can help the remaining shareholders fund a purchase, but this is slow and taxed in each recipient&#8217;s hands, so it suits smaller or staged buy-outs.<\/p>\n<h3>Debt<\/h3>\n<p>The buyers or the company may borrow, provided the debt does not put the business at risk.<\/p>\n<h3>Instalments<\/h3>\n<p>A common solution is payment over several years, with interest, and security for the departing sibling such as a share mortgage or a guarantee. The agreement should deal with missed instalments.<\/p>\n<h3>Buy-sell insurance<\/h3>\n<p>For exits caused by death or serious illness, many business owners fund the buy-out with life, total and permanent disability or trauma insurance. The policy ownership structure matters for both the agreement and tax, so it should be designed with the family&#8217;s financial adviser and accountant.<\/p>\n<h3>Share buy-back by the company<\/h3>\n<p>The company itself can buy back the departing sibling&#8217;s shares under Part 2J.1 of the Corporations Act. In general terms, a buy-back is permitted only if it does not materially prejudice the company&#8217;s ability to pay its creditors (section 257A) and the company follows the required procedure. A buy-back from only one shareholder is a &#8220;selective&#8221; buy-back, which generally needs either the agreement of all ordinary shareholders or a special resolution on which the selling shareholder and their associates do not vote. Notices must be lodged with ASIC beforehand. Directors who approve a buy-back that leaves the company unable to pay its debts can face personal liability, so solvency must be checked carefully.<\/p>\n\n<h2>Tax touchpoints in general terms<\/h2>\n<p>Every exit has tax consequences, and the right structure depends on the family&#8217;s circumstances. Points to raise with your tax adviser include:<\/p>\n<ul>\n<li><strong>Capital gains tax:<\/strong> a sale of shares is generally a CGT event for the seller. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, from 1 July 2027 the 50% CGT discount is replaced by indexation plus a 30% minimum tax for gains accruing after that date, so the timing of an exit may matter.<\/li>\n<li><strong>Small business CGT concessions<\/strong> continue and may be available if the conditions are met. The 2026 reforms relax the turnover test for the 50% active asset reduction from the 2027\u201328 income year (as at October 2026). Eligibility rules are technical.<\/li>\n<li><strong>Buy-backs by private companies:<\/strong> part of the price may be treated as a dividend rather than capital proceeds, which changes the tax outcome for the seller.<\/li>\n<li><strong>Shares held by a family trust:<\/strong> the trust, not the sibling personally, may be the seller, and the proposed minimum tax on discretionary trusts (introduced to Parliament in October 2026 and not yet law) may become relevant.<\/li>\n<li><strong>Stamp duty:<\/strong> if the company holds significant land, landholder duty may apply to some share acquisitions depending on the state.<\/li>\n<\/ul>\n\n<h2>Practical steps when a sibling wants out<\/h2>\n<ol>\n<li>Read the constitution and any shareholders&#8217; agreement to see what exit rules already apply.<\/li>\n<li>Listen first: a partial sale, a change of role or a dividend arrangement may meet the sibling&#8217;s needs.<\/li>\n<li>Agree how the price will be set before discussing the number.<\/li>\n<li>Get tax advice on the possible structures: a sale to siblings, a buy-back, or a sale by a trust.<\/li>\n<li>Work out funding and a realistic payment timetable.<\/li>\n<li>If talks stall, use a facilitator or mediator before positions harden.<\/li>\n<li>Document the exit with a share sale or buy-back agreement, deeds of release and ASIC notifications.<\/li>\n<li>Update Wills, powers of attorney and the shareholders&#8217; agreement for those who remain.<\/li>\n<\/ol>\n\n<h2>Frequently asked questions<\/h2>\n<h3>Can my sibling sell their share of the family business to an outsider?<\/h3>\n<p>It depends on the constitution and any shareholders&#8217; agreement. Many family company documents require shares to be offered to existing shareholders first, and in a proprietary company the directors may have power to refuse to register a transfer. Check the documents before any approach to an outside buyer.<\/p>\n<h3>How do you buy out a family member from a business?<\/h3>\n<p>Agree the price or the method for setting it, decide who will buy (the other shareholders or the company), arrange funding, and document the transfer properly. Tax advice should come before the structure is fixed, because a buy-back and a direct sale can be taxed differently.<\/p>\n<h3>Do I have to accept a discount on my minority shares?<\/h3>\n<p>Not necessarily. If a shareholders&#8217; agreement sets the valuation basis, that governs. If not, the price is a matter of negotiation, and whether a minority discount is appropriate is often contested.<\/p>\n\n<h2>How Chua Tan Associates can help<\/h2>\n<p>We help families plan exits before they are needed and, when a sibling has already decided to leave, we help negotiate and document a fair buy-out. Justin Chua is a Nationally Accredited Mediator and an Accredited Family Business Advisor who trained in accounting, so he can facilitate difficult valuation and funding conversations while working alongside your accountant on tax. We act for families across Australia and overseas, work with lawyers in other countries where a sibling lives abroad, have a notary public for documents signed overseas, and advise in English, Mandarin and Cantonese.<\/p>\n<h2>Related reading<\/h2>\n<ul class=\"ct-related\"><li><a href=\"\/en\/shareholders-agreement-family-business-australia\/\">Shareholders Agreement for a Family Business in Australia<\/a><\/li><li><a href=\"\/en\/shareholder-dispute-family-business-deadlock-oppression\/\">Shareholder Dispute in a Family Business: Deadlock and Remedies<\/a><\/li><li><a href=\"\/en\/transfer-family-business-to-children-tax-small-business-cgt-concessions\/\">Transfer a Family Business to Children: Tax, CGT and Stamp Duty<\/a><\/li><\/ul>\n<p><em>Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an <a href=\"#ct-enquiry\">enquiry<\/a>. Advice is available in English, Mandarin and Cantonese.<\/em><\/p>\n<p class=\"ct-byline\"><em><a href=\"\/en\/justin-chua\/\">Justin Chua<\/a> (\u8521\u667a\u52cb), lawyer and mediator, Chua Tan Associates, Melbourne. 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