What do you do about the shares in a company when someone dies?

Dealing with the winding up of the estate of someone who has died is usually upsetting and can be stressful. Whoever has been appointed the executor has to deal with all of the financial matters required to gather in any money due to the estate and pay out any debts the deceased had. Depending on whether the person who has died made a Will, this can either be very straight forward or very complicated.
We’re frequently asked what happened if the person who has dies owned a small business which traded as a private limited company. A private limited company is different from a public limited company that trades on the stock exchange – in the case of a public limited company, the shares can be openly traded and sold using a stockbroker and the sale monies paid into the estate. Alternatively, these shares can be transferred to beneficiaries as part of their inheritance and entitlement to share in the estate.
When it comes to a shareholding in a private limited company, the position is now quite as clear cut.
Whoever has been appointed as Executor (the person appointed to deal with the deceased’s estate) needs to make some enquiries about the shares and about who else might have an interest in them.
The Executor needs to determine if any other documents exist that might affect the ability to distribute the shares held by the deceased.
First of all, the Executor needs to check the Articles of Association of the Company. These are the rules that set down how the company should be run. There will be a second on Shares in these Articles and the Executor will be able to work out whether there is any prohibition on simply transferring the shares to whoever is entitled to them either under a Will or as required by succession law. There may be barriers to the executor doing that with things such as rights of pre-emption which may give other shareholders a prior option to acquire them.
It’s not unusual for shareholders in private limited companies to enter into a Shareholders Agreement. These types of agreements usually provide for a mechanism to deal with shares in the event of the death of a shareholder. Those conditions may prevent the executor from dealing with the shares as directed in the Will or as required by law.
The executor needs to take care that the shares have not been pledged in security for some agreement and the death of the shareholder triggers a transfer or a crystallisation of the debt or obligation.
Irrespective of all of the above, it is important that the Executor registers his or her interest in the shares as Executor with the company in order to receive notification of any members’ meetings or other important company information.
When the position is clear, the Executor can then proceed with the transfer or disposal of the shares either in accordance with the deceased’s wishes or in accordance with the Shareholders or other Agreement or as required by the law of succession.
This is a complex area of law and we recommend you take legal advice – not only in connection with winding up and ingathering the deceased’s estate but also on how to deal with any shares owned by the deceased in a private limited company.
If you need any help in winding up an estate of a family member or have been appointed an executor in a Will and need some help,  please call us on 0141 647 9851 or click here to email us.