When someone dies, dealing with probate can be a difficult task. It can be even more difficult if that person has not made their wishes known beforehand.
Articles of Association
When considering what happens with the shares, the first point of reference is to review the Articles of Association (The Articles). If a copy is not held with the company then an electronic copy could be found at Companies house. The Articles should set out what would happen to the shares owned by a shareholder upon his or her death. If you are a Shareholder of a Limited Company, then you should always ensure that the Articles of Association are reviewed on regular basis and updated if needed. If circumstances change and the Shareholders believe that something different should happen to that as set out in your current Articles of Association, you should ensure the necessary changes are made.
Shareholders Agreements and Cross Option Agreements
Another document that may be in existence is a Shareholders Agreement. This will not be found at Companies House as it is a private document between all the Shareholders. This Agreement can deal with several matters which could include the provisions for shares upon the death of a Shareholder.
Another Agreement that may be in existence is a Cross Option Agreement. This is specific to the issue of a Shareholder dying and will set out what happens to the shares in the Company in that event.
Notwithstanding the above, all Shareholders should make a Will. Not only is it important generally in life but especially if someone has business assets. A Will should be reviewed and updated and should be in line with the Articles of Association, Shareholders Agreement or Cross Option Agreement. If there is any difference between the wishes expressed in a Will and those three documents, then it is those other documents that will take precedent.
When it has been established what happens to the shares, a Stock Transfer Form will need to be drafted and signed with a certification on the back page that no stamp duty is payable. There should then be a meeting of the Board of Directors and a Minute to that meeting which approves the share transfer. The deceased’s share transfer can then be cancelled and a new certificate issued in the name of either the Executors of the deceased’s estate or the Transferee of whom is receiving the shares.
Our commercial department is available to support business owners with company set up and shareholder agreements. They can be contacted via email@example.com