Dealing with Shares in a Private Limited Company following a death

When someone has died, their estate needs to be ingathered and distributed to those who are entitled to it. The executor may have to deal with a house, money in the bank and insurance policies and pensions, to name but a few, but what happens if the deceased owned shares in a private limited company at the time of their death? We are looking at private limited companies. Shares in publicly owned companies can be traded on the open market using a stockbroker or other recognised share dealing service. However, if the deceased owned shares in a private limited company, there are very different challenges the executor might face.

One of the first things an executor needs to do is to read the Articles of Association of the Company. This sets out rules relating to the administration of the company and may include provisions in relation to disposal of shares. The purpose of that is to determine if there are any pre-emption rights or any prohibition on shares being transferred to third parties.

Whilst the Articles of Association may be silent on dealing with shares, the executor must also check whether a Shareholders Agreement exists. If it does, then it is likely that the Shareholders Agreement will set out the provisions relating to disposal of shares on the death of the shareholder.

Having checked the Articles of Association and any Shareholders Agreement, the executor then need to consider whether there are any provisions contained in the Will (if there is one) that contradicts the provisions of either or both of these. If the Will does contradict the provisions of either the Articles of Association or any Shareholders Agreement, it is the provisions contained in those documents that will determine what might be done with the shares.

A Shareholders Agreement usually, but not always, contains more detailed provisions relating to the disposal of shares on death than the Articles of Association. It may, for instance, instruct that the shares are to be offered to other existing shareholders before they can be transferred to anyone else. If it does, it might then go on to allow the transfer to the deceased’s family members if the existing shareholders do not take up their entitlement.

Alternatively, a Shareholders Agreement might contain provisions allowing the shares of the deceased to be transferred to a family member but not to anyone outside the family.

Having considered all of the above, the executor then needs to determine whether the shares have been pledged in security and, if they have, whether the shareholder’s death triggers any crystallisation of the debt or obligation.

One important thing to bear in mind is that the executor should register their interest in the shares as executor with the Company Secretary. By doing so, it will mean that the executor will receive notification of any members’ meetings and will also receive important company information issued to shareholders.

After the executor has gone through the process of checking the position regarding the shares, they can then proceed with the transfer or disposal of the shares. This will be done either in accordance with the deceased’s wishes or in accordance with the Articles of Association or Shareholders Agreement or as required by the law of succession should there be no Will.

If you have been appointed executor in someone’s Will or are otherwise dealing with someone’s estate and you discover the deceased held shares in a limited company, we strongly recommend you take legal advice not only on how to deal with the estate but also with the shares held by the deceased in a private limited company.

If you do need any assistance with either of these things, please contact us.