A shareholder can be defined as a person, whether natural or juristic, who owns shares or stock in a company. A person can be a sole proprietor or owner of 100% of the shares, or a part shareholder where for example they own 30% of the shares.
But what happens when a shareholder dies? Our attorneys explain the legal process.
Shares are an asset that forms part of an estate
A share is regarded as an asset, and thus forms part of the deceased estate of a shareholder after their death as part of the assets owned by them. The shares owned by the deceased will thus either be administered by the executor of the will in accordance with the Wills Act 7 of 1953 and the deceased’s wishes, or will be administered by the administrator of their deceased estate in accordance with the Intestate Succession Act 81 of 1987 where they have died without leaving a will behind.
Shares can thus be transferred from the deceased estate of a shareholder to their heirs or nearest survivors.
Shareholders can buy out the shares
It is also common practice that the remaining shareholders of a company would buy out the shares of a shareholder after their death by pooling together their resources and acquiring the shares of the deceased amongst themselves equally. The entire share portfolio of the deceased may also be bought out by a single shareholder or person.
The importance of a shareholders agreement
Another option is for the shareholders of a company to enter into a shareholders agreement during their lifetime. A shareholders agreement can be defined as an agreement that is entered into by the shareholders of a company in order to govern the relationship between the respective shareholders and to determine what is to occur with their respective shares in the event of their death or retirement.
This agreement may thus determine what is to happen to the shares of the respective shareholders in the event of their deaths, whether they be transferred to the remaining shareholders or sold to an outside party. Failure to make provision for a shareholders agreement would result in the shares becoming part of the deceased estate of the shareholder.
Shares still exist after the death of a shareholder
Shares therefore continue to exist after the death of a shareholder, and what is to happen to them after the death of a shareholder will be determined either by the shareholder during the subsistence of their life by means of a will or shareholders agreement, or by the administrator of their intestate estate should they die without having a valid will.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)