The Team

How do you deal with Shares in a Private Limited Company following a death?
30/03/2019
How do you deal with Shares in a Private Limited Company following a death?

A death in the family is usually very sad and stressful. Those left behind needs to attend to the funeral arrangements and, after that, begin to wind up the estate of the deceased. This can be simple and straight forward, especially if there’s a Will or it can be horribly complicated.

 

In this article we’re focusing on share ownership in a private limited company (as opposed to public limited company traded on the open market) and look at the options and pitfalls commonly encountered when dealing with transfer of shares.

 

The person appointed to administer the estate of the deceased – the Executor – has a duty to wind up the deceased’s estate in accordance with his or her wishes should there be a Will or in accordance with the law if there isn’t a Will.

 

This might all sound very simple and straightforward, especially if there’s a Will; however, when dealing with shares in a private limited company, the position might not be simple and straightforward as it first seems.

 

The executor needs to determine if there are any other documents that can affect his or her ability to simply distribute the deceased’s share and they will also have to examine Articles of Association of the Company (the rules set down governing the operation of the company) to find out if there are any rights of pre-emption in relation to the shares or any prohibition on their being transferred to third parties.

 

Even if the Articles of Association are silent on this, the executor must enquire about any Shareholders Agreement that might be in place. Such agreements usually provide for a mechanism of dealing with shares in the event of the death of a shareholder. Such conditions may prevent the executor from dealing with the shares as directed in the Will or as required by law.

 

A Shareholders Agreement may, for instance, instruct that the shares are to be offered to the remaining shareholders before they can be transferred elsewhere. It may allow the shares to be transferred in accordance with the deceased’s wishes if they have been first been offered to the other shareholders and they have declined to take up the offer.

 

There may be a provision allowing the shares to be transferred to the deceased’s family but not to anyone outside the family.

 

Take care, too, that the shares have not been pledged in security for some agreement and the death of the shareholder triggers a transfer or a crystallisation of the debt or obligation.

 

Irrespective of all of the above, it is important that the executor registers his or her interest in the shares as executor with the company in order to receive notification of any members’ meetings or other important company information.

 

Once the position is clear, the executor can then proceed with the transfer or disposal of the shares either in accordance with the deceased’s wishes or in accordance with the Shareholders or other Agreement or are required by the law of succession.

 

This is a complex area of law and we recommend you take legal advice – not only in connection with winding up and ingathering the deceased’s estate but also on how to deal with any shares owned by the deceased in a private limited company.