What happens if a company shareholder dies?

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One of our oldest shareholders passed away last week. He was a great friend, and although he didn’t have a frontline role in our company anymore, he was a huge influence. He’ll be sorely missed. Now, though, I’ve got to turn my attention to how this impacts business. Do you know what will happen to his share in the company? Does it get passed on to someone else, or how is this supposed to work? Thank you

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When a company shareholder passes away, his or her shares pass to whomever is stated in the will or entitled to inherit them under the intestacy provisions. However, a company’s articles will contain provisions that state the rights of the personal representative who is dealing with the deceased shareholder’s estate.

If your company has adopted Model articles, the personal representative may authorise the shares to be transferred to the appropriate recipient by way of a stock transfer form. However, some companies with different provisions in their articles regarding such eventualities - for example, pre-emption rights of existing shareholders - may stipulate that the deceased’s shares have to be offered to the other shareholders in the company.

The reason for the inclusion of such provisions is to avoid inexperienced individuals having control of the company and the right to make decisions that could negatively impact the entire business.

a year ago
 

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