Share trusts are trusts created to hold shares in a company on behalf of beneficiaries. Instead of individuals owning shares directly, the trust becomes the shareholder, and the trustees manage the shares and any benefits (like dividends) in line with the trust deed and the company’s governing documents.
In South Africa, share trusts are commonly used in two major contexts. The first is family and business succession planning, where a trust holds shares to preserve control and continuity across generations. The second is employee and empowerment structures, where a share trust holds shares for employees or qualifying participants as part of a broader ownership strategy.
This article explains what share trusts are, why they exist, how they are used in practice, and the key considerations to get right so the structure actually works.
What are share trusts?
A share trust is not a special “type” of trust in law. It is a practical label for any trust whose main asset is shares. Most share trusts in South Africa are discretionary inter vivos trusts, but they can also be testamentary trusts (created in a Will) or structured to suit employee ownership objectives.
The trust deed sets out who the beneficiaries are, how trustees make decisions, and how benefits are distributed. The company’s documents also matter. The memorandum of incorporation (MOI), shareholders’ agreement, and any B-BBEE ownership conditions can affect voting, dividends, transfers, and restrictions.
Because the trust is the shareholder, trustees must treat the shares as trust assets, manage them prudently, and exercise shareholder rights responsibly. Those rights include voting at shareholder meetings, appointing directors, approving major transactions, and deciding how dividends are applied or distributed.
The purpose of share trusts
Share trusts are typically used to achieve one or more of these goals.
Continuity and succession
When a person owns shares in their personal name, death can disrupt control. Shares may be tied up during deceased estate administration, and heirs may end up holding fragmented interests. A share trust can hold shares continuously, with trustees able to act immediately, which supports business continuity.
Control and governance
A trust can centralise shareholder decision-making. Instead of multiple family members or participants voting separately, the trustees act as one shareholder block, which can reduce deadlocks and simplify governance.
Structured benefit sharing
A share trust allows benefits to be distributed to beneficiaries under defined rules. This can be helpful when beneficiaries have different needs, ages, levels of financial maturity, or roles in the business.
Employee and empowerment ownership
In an employee share trust, shares are held for the benefit of employees or participants. The trust can distribute dividends, fund share acquisition, or create long-term wealth participation aligned to employment or performance criteria. In empowerment contexts, share trusts can form part of an ownership strategy and may support scorecard objectives when designed and administered correctly.
How share trusts are commonly used in South Africa
Family business shareholding
A family trust often holds shares in a private company. The company runs the business and pays dividends. The trust receives those dividends and the trustees either reinvest them, repay funding loans, or distribute to beneficiaries.
This model is often paired with a strong shareholder agreement that sets out what happens if a director dies, how shares may be sold, and how disputes are resolved. It is especially useful where the business should remain “one unit” rather than being split among multiple heirs.
Holding trust above an operating company
Many owners use a structure where the trust is the shareholder and the operating company is the trading vehicle. This can separate trading risk from shareholder wealth planning and makes it easier to plan for succession.
Employee share trusts
An employee share trust can hold a percentage of company shares on behalf of employees, either broadly or for specific groups. Benefits can be paid as dividends or applied to acquire shares over time. The trust deed usually sets participation conditions, allocation rules, and what happens when employees leave.
In B-BBEE-related ownership structures, the design must align with the relevant ownership principles and documentation requirements. Administration is not optional. The trust must have real governance, credible trustee decision-making, and a clear paper trail for allocations and benefits.
Share trusts for minors or vulnerable beneficiaries
Where shares are bequeathed to children, a testamentary trust can hold those shares and exercise shareholder rights until the beneficiaries reach an appropriate age. This avoids shares being held directly by minors and supports responsible stewardship.
Special considerations for share trusts
Share trusts can be powerful, but they are not “set and forget”. These are the considerations that most often determine success or failure.
The trust deed and company documents must align
A trust deed may allow trustees to sell assets, but the shareholders’ agreement might restrict share transfers. The MOI may limit voting rights or require approval for director appointments. Before using a share trust, ensure the deed, MOI, and shareholders’ agreement work together.
Trustee competence and independence matter
Because trustees control voting and governance rights, trustee quality is crucial. A common best practice is to appoint at least one independent trustee who can provide objective oversight, strengthen governance, and reduce “alter ego” risk where one person dominates decisions.
Tax treatment and distribution strategy
Trusts can face higher tax rates if income is retained. Trustees should plan whether dividends and gains should be retained, reinvested, or vested in beneficiaries where appropriate. This must be done in line with tax rules and documented properly through resolutions and financial records.
Funding and loan accounts
Shares are often “sold” to a trust on loan account rather than donated, especially in family business planning. If this is done, ensure the funding model is sustainable and tax-compliant. Section 7C implications may apply to low-interest loans by individuals to trusts, and trustees must plan for repayment and cash flow.
B-BBEE credibility and compliance
If a share trust forms part of an empowerment structure, governance must be real, not cosmetic. Trustees must be properly appointed, decisions must be minuted, benefits must be traceable, and eligibility rules must be consistently applied. Poor administration can undermine the intended outcome and create audit and reputational risk.
Practical administration and record keeping
Share trusts require disciplined records: trustee minutes, shareholder resolutions, dividend schedules, beneficiary registers, and beneficial ownership information. Banks and counterparties increasingly demand these documents. If they are not available, accounts can be restricted and transactions delayed.
Risks and common pitfalls
Share trusts are often criticised when they are used for the wrong reasons or poorly run.
A major risk is treating the trust as a personal extension of the founder. When trustees do not act independently, when there are no minutes, or when personal and trust finances are mixed, the structure becomes vulnerable to challenge.
Another risk is beneficiary conflict. In family trusts, disputes often arise when some beneficiaries work in the business and others do not. Clear distribution principles and a transparent governance approach reduce this tension.
In employee structures, confusion arises when participation rules are vague or when benefits are not communicated clearly. A share trust works best when the rules are understandable and consistently applied.
Conclusion
Share trusts can support continuity, structured benefit sharing, and long-term governance in both family and employee ownership contexts. The key is to treat the trust like a real fiduciary structure with real decision-making and ongoing compliance, not as a paperwork exercise. When the deed, company documents, trusteeship, and administration are done properly, share trusts can be one of the most effective tools in a South African ownership plan.
Crest Trust can assist with drafting and reviewing trust deeds, aligning trust and company governance documents, acting as an independent trustee, and providing disciplined administration that stands up to scrutiny.
FAQs
How does a share trust work?
The trust holds shares as a shareholder. Trustees exercise voting rights, receive dividends, and make decisions in line with the trust deed and company rules. Benefits are then distributed to beneficiaries or reinvested according to trustee resolutions and the trust’s purpose.
What are the 4 types of trusts?
A practical grouping is inter vivos trusts, testamentary trusts, special trusts (for specific qualifying circumstances), and then the functional split between discretionary and vesting trusts. A share trust can be created within any of these frameworks depending on the objective.
What are the disadvantages of using a trust?
Trusts require administration and compliance. They can attract higher tax rates when profits are retained. Banks and auditors require more documentation. Poor governance can create disputes, delays, and legal vulnerability.
What are the two types of trusts in South Africa?
The most common broad categories are inter vivos trusts (created during life) and testamentary trusts (created in a Will and activated on death). Special trusts are also recognised for specific tax purposes, but most trust planning starts with inter vivos or testamentary structures.