Upon the death of a shareholder, the shares they held generally form part of their estate. They are transferred in accordance with their will or, in the absence of a will, according to the rules of inheritance provided by law, subject to any applicable purchase or redemption mechanisms.
The death of a shareholder does not automatically transfer their shares to the other shareholders. The estate executor exercises the rights relating to the shares in accordance with the powers conferred upon them and the applicable rules, until the shares are redeemed or transferred.
Before proceeding with the repurchase or transfer of shares, it is important to review the company's articles of incorporation and any shareholder agreements containing buy-sell clauses. These documents may include provisions such as:
When the applicable conditions are met, the required corporate formalities must be completed. Depending on the circumstances, this may include preparing the necessary resolutions, registering the transfer, purchase, or redemption of shares in the securities register, updating other corporate registers and the information to be reported to the appropriate authorities, and, where share certificates are used, issuing or replacing them, as appropriate.
The death of a shareholder can also have consequences for the company's control, the allocation of voting rights, or the continuity of its operations. A shareholders' agreement containing well-drafted buy-sell clauses allows for planning the fate of shares upon a shareholder's death and provides a framework for their purchase, repurchase, or transfer.
In summary , the shares of a deceased shareholder generally form part of their estate. However, their purchase, redemption, or transfer depends on applicable laws, the company's articles of association, and, if applicable, a shareholders' agreement containing buy-sell clauses. It is therefore recommended to review the company's current documents before taking any action.