Til Death Do Us Part – Shares and Succession/Estate Planning

SuccessionPlanning

As an owner of shares in a private limited company (especially owner-managed companies), are you one of the many who believe that your shares pass automatically under the terms of your will?  If so, read on.  Here we look briefly at how Shareholder Agreements and Articles of Association can affect what happens to shares after death.

Ordinarily, what happens to your assets after death depends on your Will or intestacy rules. However, this may not be the case with shares in a private limited company as there may be restrictions on how the shares can be transferred or transmitted.

The Company’s Articles of Association set out how the company should be run. The Shareholder Agreement is a binding agreement between shareholders (or some of them) setting out how they will conduct themselves in respect of certain shareholder matters. These documents can overrule the Will so a shareholder who dies may not be able to leave their shares to their chosen beneficiaries.

Either document may set rules for what happens on death but barriers to estate planning include:

  • giving the board a discretion whether to register a new owner of shares
  • a requirement to give existing shareholders right of first refusal to the shares
  • a requirement that the shares are bought by the Company and cancelled.

Whilst value will be given for the shares, risks include:

  • beneficiaries in the will missing out on being involved with the company.
  • increasing the value of your estate for tax purposes
  • causing a sale of shares at a time when the company’s valuation may be low.

How can Haddletons help?

Haddletons can help make sure the Articles of Association and Shareholders Agreement meet your needs. Working alongside those drafting your wills and your accountants, we can help give you peace of mind for yourself and those who follow in your steps. Get in touch today!

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