When a shareholder of a limited company passes away, their shares must be dealt with in accordance with specific legal and company procedures. Understanding how this process works can help ensure smooth business continuity and safeguard personal wishes.
Ownership of Shares: What Happens Next?
A limited company is a separate legal entity, meaning its assets are distinct from the personal assets of its shareholders. Upon a shareholder’s death:
With a Shareholders’ Agreement: A valid and binding shareholders’ agreement should outline what happens to the deceased’s shares. This document takes precedence in directing how shares are managed or transferred.
Without a Shareholders’ Agreement: If there is no such agreement in place, the distribution of shares will follow:
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- The deceased’s Will, if one exists.
- The rules of intestacy, if there is no Will, which could mean shares passing to the closest living relative(s).
It’s also important to note that if there is a valid shareholders’ agreement and a conflicting Will, the shareholders’ agreement typically takes precedence.
What If the Shareholder Was Also a Director?
The situation becomes slightly more complex if the deceased shareholder was also a director of the company. Here’s how this could play out:
- Other Directors Are in Place:
The company can continue to operate as usual, with the remaining directors possibly appointing someone to fill the vacant role. - Only One Director (But Multiple Shareholders):
The remaining shareholders have the authority to appoint a new director. - Single Director-Shareholder Scenario:
If the deceased was the sole director and shareholder, their personal representatives (executors of the estate) can appoint a new director to ensure the company’s operations continue.
Steps to Take: Protecting the Business and Personal Wishes
- Review the Company’s Articles of Association:
These documents outline the rules governing the company, including how to handle the death of a director or shareholder. Ensure they are up-to-date and clear. - Have a Valid Will:
Whether you are a majority or minority shareholder, having a valid and current Will is essential. This ensures your shares are distributed according to your wishes and helps avoid disputes.
Need Help with Your Will?
Don’t leave your company’s future to chance. Whether you’re looking to draft a Will or update an existing one, we can point you in the right direction
Contact one of our advisors today for an initial discussion. Call us on 01235 868888 or email us at [email protected].
