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In the event of the death of a shareholder in a company, it is important to consider what will happen to the deceased’s assets, including any shares the deceased owns in the company.
This is what our Corporate Law experts will be exploring in this article.
Usually, the first step when determining how a deceased shareholder’s shares will be passed on to the beneficiaries is to check whether there is a will.
It is also important to consider the company’s constitution; in particular, consideration must be given to that company’s articles of association and whether there is a shareholders’ agreement in place.
Generally, if a shareholder has died leaving a valid will (which appoints an executor(s)), the shares are issued to the deceased personal representatives.
If there is no will, the shares vest in the Public Trustee until such a time whereby letters of administration are obtained.
Following this, the shares will pass to the administrator.
Where shares are held jointly, the legal title to those shares will pass to the surviving shareholder.
Before the grant of probate or letters of administration is issued, the personal representatives have the right to request the company to formally register them as the holders of the shares.
However, the articles of association for the company will often require the personal representatives to prove their entitlement to the deceased’s shares.
A company’s articles will generally dictate what involvement (right to vote or attend meetings) the personal representatives have before the grant of probate/letters of administration being issued.
Following the issue of a grant of probate or letters of administration, the personal representatives do not need to be included on a company’s register of members before transferring the deceased’s shares to the ultimate beneficiary, a transmittee may transfer the shares to another person without being a registered member themselves (subject to any restriction on the transfer of shares in the articles of association).
The personal representatives are entitled to have themselves entered into the company’s statutory registers as the holders of the deceased’s shares (subject to the articles of association).
Usual provisions in the articles of association/shareholders’ agreement include:
The personal representatives have the following rights (subject to anything contained in the articles of association):
It is usual for a company’s articles of association or a shareholders’ agreement to make provisions in the event of the death of a shareholder and how shares held by that shareholder can be transferred.
It is, therefore, important that the provisions outlined in the articles of association and a shareholders’ agreement (should there be one in place) are followed.
It is also important to consider whether a cross-option agreement is in place.
A cross-option agreement gives the surviving shareholders the right to buy the deceased shareholder’s shares and their personal representatives the right to require the survivors to buy those shares.
Our corporate team would be happy to discuss any questions you may have relating to a company’s articles of association, shareholders’ agreement and/or cross-option agreement, and how we can assist you and your company on:
Akeel has 25 years of experience acting as a Corporate solicitor. Akeel has specialist expertise in mergers and acquisitions, share options and buy-backs, shareholder disputes, and business reorganisations.
About Mohammed Akeel Latif >
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