Here, we detail four helpful actions to take into account when transferring the shares of a shareholder who has passed away with business owners and executors in mind.
Perhaps the most obvious first port of call when dealing with a deceased shareholder's shares is the deceased's will. Assuming the deceased has a will, any wishes therein as to how the deceased's business assets should be distributed will be subject to any contracts made prior to the death. In the corporate context, this requires the executors to check:
If the deceased had a will, any instructions in it regarding the distribution of the deceased's company assets would be subject to any agreements signed before the death. This calls for the executors to verify the following in the corporate context:
The articles of association for the corporation where the deceased's shares were held should be consulted by the executors. The articles of association for a corporation are available to the public in the Companies House.
The executors should also enquire as to whether a shareholders' agreement was documented if the relevant company has two or more shareholders. A shareholders' agreement is a private agreement between some or all of the shareholders, usually regulating how the company will be run, and how certain key decisions will be made. Given that a shareholders' agreement is a private document, it will not be available on Companies House. The executors should check the deceased's papers and make inquiries with the remaining shareholders.
Articles and shareholders' agreements will commonly contain provisions dealing with how shares can be transferred. These provisions must be followed for the transfer to take effect.
It may well be the case that these provisions accord with the deceased's will, and transfer to the intended beneficiary presents no difficulty. However, it may also be the case that the provisions conflict with the wishes expressed in the deceased's will, making the transfer problematic. In such cases, the provisions of the articles or shareholders' agreement will take precedence over the deceased's will and frustrate the deceased's wishes.
Transfer provisions also commonly require a procedure to be followed before the transfer can be made. Some non-exhaustive examples of such transfer provisions might be that:
Executors should also check whether the deceased entered into any other agreements which may affect the treatment of shares on death.
An example of such an agreement is a 'cross option agreement'. This kind of agreement provides that, if a shareholder dies, the existing shareholders can require the deceased's shares to be transferred to them, while the executors could require the remaining shareholders to buy the shares held by the estate.
In the same way as articles and shareholders' agreements, a cross-option agreement would also take precedence over the terms of the will if the terms of the will were inconsistent with the agreement.
Again, the particular practicalities to be followed will be dictated by the company's articles of association, which will need to be checked carefully.
Generally, however, articles will commonly provide that executors have two options when transferring the deceased's shares:
In either case, the articles will normally require the executors to provide the company's directors with "such evidence of entitlement as to shares as the directors may properly require". Typically, such evidence will be the grant of confirmation in Scotland, or probate in England.
Once confirmation (or probate, as the case may be) has been granted, the first practical step in transferring the shares is the completion of a stock transfer form, completed by the executors. In the normal course, the executors will certify on the back of the form that no stamp duty is payable.
The second practical step in transferring the shares is a resolution of the company's directors approving the share transfer. The deceased's share certificate will then be cancelled, and a new certificate will be issued in the name of the executors, or the transferee, and the company's registers will be updated.
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