When a company director dies, it is usual for his shares to pass to whomever inherits his shares through his will.
The mechanism by which the deceased’s executor might implement this transfer will, unless otherwise stated, be set out in the company’s articles. Nearly all companies have Model Articles or Table A Provisions which require the deceased’s personal representative to execute a stock transfer form or alternatively, to apply to be registered by the company as a shareholder.
Of course, where a director leaves his shares to someone outside the business this might cause tremendous problems. What happens if the new shareholder doesn’t agree with the other directors on the way forward for the business? Their interests may not be aligned and even if they are, there is no prior working relationship to lean on when making business decisions.
If the shareholding is a majority one or one that has significant voting rights, the company directors might not be secure in their own business! The new shareholder may be able to insist on a dissolution and liquidation of the business and its assets.
To avoid these pitfalls, it is usual for a shareholder’s agreement to set out the procedure in the event that a shareholder and/or director should die. The agreement might allow the shares to pass directly to remaining directors, or for certain pre-emption rights to be allowed in favour of the existing shareholders. Of course, where a deceased director/shareholder’s spouse or dependents survives the deceased, this might leave them without financial support.
To rectify this potential injustice, many shareholder’s agreements will allow for a cross option agreement which allows for the beneficiaries of the will to be paid for the deceased’s shares through the arrangement of a life insurance policy taken on the shareholder / director’s lives.
In the case where a director is not a shareholder but is still key to the successful operation of the business, it may be sensible for the business to take up what is known as ‘key man cover’ which will pay the business a lump sum in the event of the director’s death. This should enable the business to continue whilst efforts are made to replace the director’s talents or liquidate the business for its real worth.
It is clear from the above that any business and its shareholders should be considering what will happen in the event that a key director or shareholder dies and planning accordingly for the worst.
In the first instance, speak to us for a confidential and discreet conversation, without obligation.
To speak to a wills and estate planning adviser contact us on 01628 507477.
Related articles:
We look at how to get the best Buy to Let mortgage rate, what's in store going forward, and options as a landlord with increasing costs.
9 days ago
Throughout this past week, lenders have continued to reduce their mortgage rates giving borrowers in the UK some welcome news following the change in global tariffs under US President, Donald Trump.
9 days ago
Did you know that buying a house, or relocating is in the top 10 most stressful life events?
Stress of course is an unavoidable part of life and there are many reasons why people experience stress, not just buying a house!
There are lots of effective ways to manage and reduce stress, check out our tips to help you.
22 days ago
With the stamp duty relief ending in England and Northern Ireland, we have listed the top 10 cheapest areas for first-time buyers as published by Rightmove.
22 days ago
Are you looking to purchase your first home but unsure where to begin? Here are some tips to get you started.
Choosing which fixed rate to go for has been a dilemma for many of our clients so far this year. There really isn’t a right or wrong answer, but below we will look into the pros and cons of a two-year and five-year to help you make the right decision for you.
18 Mar 2025
Here are the lowest fixed mortgage rates of the week, available to first-time buyers, home movers, buy-to-let, and those remortgaging.
Call us for more information: 01628 507477 or email: team@mortgagerequired.com.
17 Mar 2025
According to Rightmove, a whopping 500,000 UK homebuyers are rushing to finalise their home purchase before the new Stamp Duty rules change in April.