It is important for everybody to make a Will regardless of their personal wealth or family circumstances. However, for an individual who holds shares in a private limited company (like a family business) it is particularly important that he or she gives careful consideration as to what should happen to those shares on death. This would equally apply to the interest of a partner in a partnership.
For example Mr Hunter runs a removal company with his three brothers. The business has been incorporated as a private limited company and each brother holds 25% of the shares. Mr Hunter decides that he wants to make a Will specifying that everything that he owns as at his date of death should pass to his wife. If his wife dies before him then his whole estate should be split equally between his son and daughter. So far so straightforward. Mr Hunter assumes that because he owns the shares in the removal company he can pass them to his wife (or children) on his death along with the remainder of his assets (including a one-half share of the family home, cash, investments etc.). However, in such a situation it is vitally important to check the company’s Articles of Association to ascertain if they provide for any rights of pre-emption in the event that a shareholder wants to sell or gift the shares during his lifetime or transfer them through the terms of his Will on death. If the Articles of the removal company provide that when a shareholder died his shares are subject to a right of pre-emption in that the other shareholders (being Mr Hunter’s three brothers) get a right of first refusal on the shares in preference to Mr Hunter’s wife. This provision would effectively trump the terms of Mr Hunter’s Will in specifying that his whole estate should pass to his wife.
Therefore it is important for all shareholders to check the terms of the company’s Articles to ascertain what provisions they contain in respect of the transmission of a deceased person’s shares (and similarly for partners to check the terms of the Partnership Agreement) as part of the overall succession planning process.