Death of a shareholder: What to do with the shares

Dealing with the death of a shareholder can be a complex and emotional process. It is essential to approach the situation with care, to be aware of the necessary steps to handle the deceased's assets properly and consider the steps that can be taken in advance of any such event.

First steps – where to start

The initial step in this process is to review any Shareholders Agreements and/or Articles of Association that apply to the company in which the shares are held. It is important to note that these documents take precedence over the deceased shareholder's Will if any conflicts arise. By consulting these agreements first, it is possible to streamline the process and avoid unnecessary complications.

If the Articles or Shareholders Agreement do not address the matter, the distribution of the shares will follow the instructions in the Will. In the absence of a Will, the shares will be distributed according to the intestacy rules.

Procedures – what to look out for

Certain procedures may need to be followed before transferring the shares, depending on the existence of requirements in any Shareholders Agreements or Articles. These procedures may include offering the shares to remaining shareholders through rights of pre-emption or obtaining approval from the directors for share transfers. It is important to adhere to these procedures to ensure a smooth and legally compliant transfer.

Executors should also consider the possibility of a cross-option agreement between the deceased shareholder and other shareholders. This agreement stipulates how the remaining shareholders acquire the deceased's shares and takes precedence over the Will in case of conflicts.

Sole shareholder and director

In cases where the deceased was the sole shareholder and director of the company, it is crucial to have efficient procedures in place to minimise disruptions. Reviewing the company's Articles of Association becomes even more important in these circumstances. Ensuring that the Articles allow for the appointment of a new director by personal representatives or executors can help the company to continue operating smoothly.

Conclusion

In conclusion, dealing with the death of a shareholder requires careful consideration and adherence to legal procedures. By consulting relevant agreements, following established procedures, and planning ahead with Cross-Option Agreements or bespoke articles, the transfer of shares can be handled efficiently, allowing for a smooth transition during such a challenging time.

To avoid future confusion regarding the treatment of shares, it is recommended to have bespoke company Articles that provide clear instructions on handling shares after a shareholder's passing. Shareholders Agreements should also include explicit provisions to minimise ambiguity and ensure a seamless process.

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.

BPE can help

Should you require any further information, please get in touch with william.pearce@bpe.co.uk