How are Company Shares Handled in BC Estate Law?

Upon an individual’s death, estate administration commences, and the executor undertakes the task of distributing assets to beneficiaries as per the deceased’s will. When the deceased has an interest in a private corporation, handling shares differs from managing simpler assets such as personal items or cash reserves. In this blog, we’ll discuss private company shares during estate administration and offer tips for estate planners with interests in privately held companies.

Company Law and Estate Law

Business owners or company share holders must carefully consider both company and estate law when creating a succession plan. This not only ensures efficient estate administration and asset distribution but also maintains the company’s health and continuity. Will writers should first comprehend the corporate structure of their involved company to avoid surprises during planning or post-death administration. Many people may be unaware that upon registration, corporations become separate legal entities with distinct rights from their owners. Corporations can be public, with stocks traded publicly, or private, owned by a limited shareholder group and not publicly traded.

Understanding Your Company Shares Before Writing Your Will

Will writers must fully understand their rights and liabilities concerning the company they hold an interest in to prevent confusion or litigation after their death. They should also know that after drafting and executing a will, it’s possible to create a new one or draft a supplementary document called a codicil for minor additions or changes. For more on this, read our article on writing a new will here, or on codicils here.

The type of business interest held by the deceased is fundamental to the estate administration. If the deceased was the sole shareholder and director of a company, the executor must consider the following elements in the estate administration:

• How will they safeguard the company and its assets while they are in possession of them during the administration process?
• Do the articles of association (internal governing rules) of the company include any duties that the executor must adhere to during the probate and administration process?
• How has the deceased elected to pass their shares down in the estate plan?

Particularly for those who are sole-owners or hold shares in a private company, careful planning of their will is paramount. Further, it is important that will writers ensure the corporate organization and operation of their company follows all provincial and federal regulations to prevent litigation or other difficulties when passing down shares.

Where the Deceased is One of Many Shareholders

If the deceased was one of many shareholders, the shares may be subject to special rules which govern the company. These rules are often found in a company’s articles of association, shareholders’ agreements, or other relevant contracts. It’s crucial for will writers to understand the rules governing share transfer and ensure their estate lawyer has the necessary information. This helps create an estate plan in line with their shareholder rights and responsibilities. Some examples of things included in a company’s articles or shareholders agreements that will writers and executors should be aware of are:

Rights of first refusal: The company’s shareholders’ agreement or articles of association may contain a right of first refusal, which means that the company or the remaining shareholders have the right to buy the deceased’s executor can distribute them to the beneficiaries of their estate.

Restrictions on transfer: The company’s articles may impose share transfer restrictions, impacting or placing conditions on the executor’s ability to manage and transfer shares.

Capital Dividend Account: If the company has a capital dividend account, the personal representative must consider the tax implications of distributing the account to the beneficiaries.

Navigating Share Transfer Complexities and Tax Implications in Estate Planning

Provisions like rights of first refusal and transfer restrictions can complicate share transfers, possibly undermining the testator’s intentions. Tax implications related to certain assets, like capital dividend accounts, must be considered to avoid unintended financial burdens for beneficiaries. Addressing these concerns helps ensure estate management and distribution align with the individual’s wishes, safeguarding their legacy and providing financial security for loved ones. The complex nature of estate administration and private company share distribution requires careful planning and attention to detail. Will writers need a thorough understanding of the corporate structure, shareholder rights and responsibilities, and governing rules affecting share transfers. By considering these factors, will writers can create an estate plan ensuring efficient asset distribution while preserving the company’s continuity and stability.

Navigating estate planning and private company share distribution complexities often requires an experienced lawyer’s assistance. Legal professionals have the expertise to guide you, identify obstacles, and develop goal-aligned strategies for your estate and company. They can ensure a solid estate plan, minimizing confusion or litigation risks, and providing peace of mind for you and loved ones. If you’re a shareholder of a private company, contact us for a consultation and take the first step toward safeguarding your legacy.