Planning for the worst, something that has to be done.

If you are a shareholder of a Limited Company and you die, the shares will go to whoever inherits them under a will or through intestacy. The deceased person`s shareholder will be administered by the executors of the will or if there is no will left, then through administrators of the estate.

The Limited company will need to accept evidence of the probate of the will or letter of administration to establish that the rights of the personal representatives in respect to the shares and ownership. The representatives of the deceases are subject to the Company`s Articles of Association.

Some companies have restrictions on the transfer of shares outlined in the articles, which may allow the directors of the company to refuse the registration of the shares.

It is essential to make sure you have a plan in place in case one of the shareholders dies, it is essential that this process is correctly documented.

Some normal arrangements are as follows:

  1. An agreement that any shares may pass to particular people such as a shareholders partner or children.
  2. Pre emption rights in favour of the existing shareholders
  3. A pre arranged right to buy the deceased shareholders holding with valuation arrangements and a payment schedule.
  4. A cross option agreement, a legal contract between the shareholders and the owner of the shares with an insurance policy which will pay a pre agreed sum which would be used to pay for the deceased shareholders holding. For example the shareholder passes the shares to his partner, the other shareholders then arrange for insurance prior to death to cover the cost of buying the shares back. Upon death, the shareholders then are given the legal right to buy the shares from the partner using the insurance pay-out.

The situation you need to avoid is whereby there is no plan, and a shareholder dies and there are conflicting issues with the will and the companies articles.

If you need professional advice on the above issues, Your Virtual Office London can help discuss the option available to you. We are company formation experts, and have been forming companies since 1971.