In our article on shareholder agreements, we mentioned how such an agreement could cover what would happen if a shareholder died prematurely. In this article, we look at this topic in a little more detail and how it should be part of a business owner`s overall personal property planning strategy. As noted above, the possible ownership of the shares depends on what is in a shareholders` pact or a custom status (if so. In many cases, when a shareholder dies or leaves the transfer of his shares, there is a buyback. This buy-out is usually stipulated in the shareholders` pact, which indicates who acquires the shares of the deceased shareholder. The purchase is made between the designated buyer and the estate of the deceased surviving shareholder or family member. For example, if Fred owns 5% of the shares in Company X and dies. George, the designated buyer of Company X, will buy Fredes 5%. It should be noted that George will only buy the shares if the shareholders` pact indicates that George as the designated buyer. In addition, the shareholder contract may provide that a third party may also buy Fred shares. If there are no repurchase clauses, it is likely that Fred`s estate owns the 5% share of Company X.
To avoid such difficulties, it is preferable to modify standard articles or create custom articles to provide for specific provisions governing the transfer of shares. It is also useful for companies with two or more shareholders to establish a private shareholders` pact setting out clear and precise rules and procedures for share transfers. In addition, the conditions for granting shareholders` permission for their shares should be in line with the provisions of the articles and the shareholders` pact. When a shareholder dies, the right to his interest in the shares is transferred to the hereditary heir according to his will or inconsistency. The rights of the deceased shareholder are managed by his wills (if any) or by the administrator of the estate when the shareholder has died intestate. (Performers and administrators are collectively referred to as “personal representatives.”) The company must accept proof of the estate or administrative letters to justify the rights of personal representatives with respect to the shares: CA 2006 sec774. The rights of personal representatives to process shares are governed by the provisions of the company`s statutes. Almost all companies have either the model articles or the following provisions in Table A (the two below) requiring personal representatives to either execute a reassigned form, transfer the shares to the person concerned, or to request by letter the registration of the company as a shareholder.
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