What to Do When a Shareholder Dies
When a shareholder of your corporation dies, it can spark a lot of questions, such as who gets his or her remaining shares? If a relative inherits them, can you control to whom they go and that person’s subsequent role within the corporation?
When Shares Pass to Surviving Family MembersAt Garcia & Gurney, ALC, we understand how important it is to have a plan in place should you or another shareholder pass away. We work with corporations to ensure that, in the event of a shareholder's death, the surviving shareholders are not left in the lurch.
Unless there are specific provisions that expressly prohibit a shareholder from transferring his or her shares to surviving family members, the shares will likely pass to whomever inherits them in accordance with the deceased's will or trust. Though this would seemingly make things pretty simple, it could pose problems for the surviving shareholders, especially if they feel that the beneficiary is unfit.
How to Protect the SharesOne way that shareholders can protect their rights is through a written agreement between the shareholders. A written agreement can give existing shareholders and the corporation repurchase rights upon the occurrence of an event (e.g., the death of a shareholder). The written agreement would provide procedures for the shareholders to follow upon the occurrence of the event and provide guidelines on determining the value of the shares to be repurchased and payment options. The written agreement is meant to eliminate any guesswork on what to do when a shareholder passes away and to minimize the possibility of disputes among the remaining shareholders.