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 his or her death as part of the assets owned by him or her. 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 his or her deceased estate in accordance with the Intestate Succession Act 81 of 1987 where he or she has died without leaving a will behind.
Shares can thus be transferred from the deceased estate of a shareholder to his or her 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 his or her 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 his or her life by means of a will or shareholders agreement, or by the administrator of his or her intestate estate should he or she die without having a valid will.
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The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.