Can I leave my shares in a private company in my will?

In short, the answer is yes, but the process is not straightforward and there are many factors which can change this answer.

If a shareholder passes away their shares automatically transmit to their PRs (personal representatives) or “executors”, and these are the people entitled to deal with the shares in lieu of the original shareholder. It is the responsibility of those executors to pass ownership of the shares to whomever the deceased has left them to in their will. However, the executors will be restricted by the company’s constitutional documents.

What are the obstacles?

Obstacles are most likely to come from a company’s articles of association or, if the company has one, a shareholders’ agreement. It may also be that restrictions from a recent share purchase agreement are still in effect.

Articles of Association.

These are the rules of how a company operates and establishes procedures that must be followed when shareholders wish to do certain things, such as transfer their shares. You should review the provisions regarding:

• Director’s right to refuse the register of a transfer of a share; and

• Transfer restrictions.

The former can be crucial: if the directors refuse to register the transfer of shares, the executors will hold the shares on trust for the recipient. This means the recipient will have a beneficial interest in the shares but be unable to vote or attend meetings.

Shareholders Agreement

While not compulsory, it is extremely likely that private companies will have these between their shareholders. Often shareholder agreements provide for what will happen upon the death of a shareholder. In particular, you should review whether the agreement contains provisions regarding:

• buy-back clauses;

• transfer provisions (such as “deemed transfer notice”, etc) and

• pre-emption.

Pre-emption clauses will allow the remaining shareholders to purchase the shares of the deceased, as per their percentage shareholding before. This ensures that the share ownership remains in house and doesn’t transfer to an external third party.

Other obstacles

Aside from the above, you must also ensure that you have thought carefully about who is going to gain control of the shares after you pass away. You will need to comfortable that:

• you want the recipient of the shares to have control; and

• they want to have control.

It might be that, if the shares are going to family, they would rather have the value of the shares rather than the shares themselves.

If this is the case, it is worth considering implementing a cross-option policy with corresponding insurance. This will ensure that

• the remaining shareholders have the right to purchase the shares, and

• they have the funds to purchase those shares (coming from the insurance policy payout).

Head of Probate, Wills and Trusts, Phoebe Skarlatos, says “it’s extremely important that business owners plan for their businesses in the event of their death. There are lots of ways Wills can be drafted to give flexibility and protection to business owners (and subsequently their families) on death, so it is important they seek legal advice when considering estate planning”.

If you are the holder of shares in a private limited company and wish to start planning for the future, contact Lawson West Solicitors today.

Our dedicated team of experts in Probate, Wills & Trusts together with Corporate & Commercial will discuss with you what your eventual aims are, advise you on any obstacles that are present and offer you solutions to remove or mitigate those, which will enable you to implement your plan and achieve the outcome you desire.

Contact us on telephone 0116 212 1000 or fill in the free Contact Us form and we will get in touch as soon as possible.

View all