An SMSF can invest in private companies and unlisted shares, but this carries significant compliance risks that trustees must carefully manage. The key concern is the in-house asset rule — generally, no more than 5% of your SMSF’s total assets can be invested in assets related to a member or their associates, which can easily be triggered when investing in a business connected to a trustee.
Valuation is another challenge: unlike listed shares, private company shares don’t have a readily available market price, so trustees must obtain an independent valuation each year for reporting and audit purposes. Given the complexity, professional advice is strongly recommended before making this type of investment.