Private Company Law

When a shareholder dies the right to his interest in the shares will pass to whoever inherits them under his will. The deceased shareholder’s rights will be administered by his or her executors. The company has to accept evidence of probate of the will to establish the rights of the personal representatives in respect of the shares. The personal representatives’ rights to deal with the shares are subject to the provisions of the company’s articles of incorporation. Nearly all companies have either the Model Articles or the Table A provisions (both set out below) which require the personal representatives to choose either to execute a stock transfer form, transferring the shares to the appropriate person, or to apply by letter to be registered by the company as the shareholder.

This will, however, be subject to any restrictions on transmission in the company’s articles. Restrictions on the transfer of shares will generally apply also to transmission on death. Many companies have restrictions on the transfer of shares in their articles, which may allow the directors to refuse registration of the shares, or impose pre-emptive rights, etc.

Some typical language written into articles of incorporation is found below:

Model Articles Provisions

Transmission of shares

(1) If title to a share passes to a transmittee, the company may only recognise the transmittee as having any title to that share.

(2) A transmittee who produces such evidence of entitlement to shares as the directors may properly require-

(a) may, subject to the articles, choose either to become the holder of those shares or to have them transferred to another person, and

(b) subject to the articles, and pending any transfer of the shares to another person, has the same rights as the holder had.

(3) But transmittees do not have the right to attend or vote at a general meeting, or agree to a proposed written resolution, in respect of shares to which they are entitled, by reason of the holder’s death or bankruptcy or otherwise, unless they become the holders of those shares.

Exercise of transmittees’ rights

(1) Transmittees who wish to become the holders of shares to which they have become entitled must notify the company in writing of that wish.

(2) If the transmittee wishes to have a share transferred to another person, the transmittee must execute an instrument of transfer in respect of it.

(3) Any transfer made or executed under this article is to be treated as if it were made or executed by the person from whom the transmittee has derived rights in respect of the share, and as if the event which gave rise to the transmission had not occurred.

Alternative Provisions:

(1) If a member dies the survivor or survivors where he was a joint holder, and his personal representatives where he was a sole holder or the only survivor of joint holders, shall be the only persons recognized by the company as having any title to his interest; but nothing herein contained shall release the estate of a deceased member from any liability in respect of any share which had been jointly held by him.

(2) A person becoming entitled to a share in consequence of the death or bankruptcy of a member may, upon such evidence being produced as the directors may properly require, elect either to become the holder of the share or to have some person nominated by him registered as the transferee. If he elects to become the holder he shall give notice to the company to that effect. If he elects to have another person registered he shall execute an instrument of transfer of the share to that person. All the articles relating to the transfer of shares shall apply to the notice or instrument of transfer as if it were an instrument of transfer executed by the member and the death or bankruptcy of the member had not occurred.

(2) A person becoming entitled to a share in consequence of the death or bankruptcy of a member shall have the rights to which he would be entitled if he were the holder of the share, except that he shall not, before being registered as the holder of the share, be entitled in respect of it to attend or vote at any meeting of the company or at any separate meeting of the holders of any class of shares in the company.

Types of Account Registrations

Shareowners have a number of ways to register their stock. Some of the more common types of ownership are listed below.

Joint Tenant: Two or more individuals are listed on the account. Upon the death of one joint owner, the survivor(s) are entitled to the shares.
Transfer on Death (TOD): A form of individual or joint tenant ownership where a beneficiary has been designated. The beneficiary has no rights to the security until the security owner(s) dies. Upon the death of the security owner(s), the ownership of the security passes to the TOD beneficiary. Not all states have passed statutes to allow for TOD registrations.
Trust: A form of ownership governed by a trust agreement created during the lifetime of a grantor or created under a decedent’s will. The account registration must include the name(s) of the Trustee(s), the name of the Trust, and the date of the Trust.

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September 28, 2016 / Articles, Articles General