Can I leave my shares to a beneficiary in my Will?

One question we come across frequently is, “What happens to my shares when I die?” This is a good question. People often assume they can simply leave their shares to a beneficiary in their will, and that there’s nothing anyone can do to stop them. Well, in this article we explore the answer to this question. The answer depends greatly on what type of company the shares are in and whether you are the sole shareholder.

I am the sole shareholder, so can I leave my shares in my Will?

If you are the sole shareholder of the company, then there are effectively no restrictions on your leaving the shares in the company as you wish. However, if you are still needed to work there, it is often better to sell the company while alive. This enables you to:

• plan your exit;
• train up a replacement for your role in an orderly fashion;
• get a good price for the company; and
• preserve its value.

A great deal of value can be lost if someone who was fundamental to the business dies in office and there is no one ready to take it over. However, you should take tax advice, as this may not be as good for Inheritance Tax as holding onto the shares in a trading private company until you pass away.

The rest of this article focusses on the situation where you are not the sole shareholder so there may well be some restrictions on what you can do with the shares.

1. Can I leave shares in a listed PLC in my Will?

PLC means a “public listed company”. Most larger PLCs are listed on one of the stock markets, such as the London Stock Exchange (e.g. the AIM market or FTSE). Almost certainly you can transfer shares in a listed PLC in accordance with the terms of your will. Shares in listed PLCs tend to be freely transferable by the terms of their Articles of Association (the company’s constitution). Almost the only requirement here will be that you don’t currently owe the company any money on the shares, e.g. if a “call” (demand) has been made for you to pay the balance (or part of it) of any amount owing on the shares when the PLC originally issued them.

The executors will need to register the death and provide proof of their right to deal with the shares, for example evidence of a grant of probate for the will or letters of administration. The options are for the executors to transfer, either electronically or using a stock transfer form, the shares into their own names (temporarily) or directly to a beneficiary under the will. If there was a physical share certificate, then the executors need to surrender it. The registrar of the company will issue a new share certificate in due course.

2. Can I leave shares in a private company in my Will?

Generally these are not freely transferable. The Articles of Association govern the situation. Most private companies formed since 2009 use the Model Articles. Most private companies formed before 2009 use “Table A” style of Articles from one of the earlier Companies Acts. In each case, the Model and Table A Articles give the board of directors a wide discretion to reject any transfer of shares that your executors submit to them. They should not used this power capriciously.

If you can freely transfer the shares, then, again as with a listed PLC, the executors will register the death and their right to deal with the shares. They will:

• return the original share certificate; and
• submit a stock transfer form to transfer the shares to them or a beneficiary.

If the Articles or a shareholders agreement impose any restrictions on the transfer of shares, then they will set out a process that you would need to follow. Often there are “pre-emption rights” (or rights of first refusal). They normally mean you need to offer the shares for sale to the other shareholder(s) at a fair price. There may be a mechanism for an independently valuer to determine the value of the shares if there is not agreement over the price. However, such a process means that you cannot generally pass the shares to the beneficiaries set out in your will.

If the other shareholder(s) do not want the shares, then it might be possible to pass them in accordance with the will. Alternatively, the directors might still have the right to turn the transfer down.

Therefore, where you hold shares in a private company, you need to consider the Articles or shareholders agreement before writing your will.

Get a shareholders agreement

If you are a significant shareholder in a private company that does not already have a shareholders agreement, you should get such an agreement in place now. We offer a shareholders agreement template for this purpose. The main reasons for this are that you want the right to sell the shares for a fair price or to leave them to your descendants if a fair price cannot be agreed or if the other shareholder(s) do not want them. You don’t want to be locked in (to have to keep the shares) or have your executors obliged to sell the shares for less than their market value. These are risks without a shareholders agreement. For more about why you need a shareholders agreement and what it should cover, read our article.

3. What about leaving shares in overseas companies in my will?

This article is not primarily about shares in overseas companies. However, often companies overseas will fit into similar categories as UK ones, as set out above. In addition to providing the registrars of the overseas companies with proof of death, evidence of the authority of the executors or personal representatives (a copy of the grant of probate or letters of administration) and possibly a copy of the will if there was one, you should expect them to ask you to have all of that paperwork notarised (i.e. certified by a notary public). You should find a notary in every large town or city near you. You can find the nearest ones to you by running a search at the Notaries Society’s website.

However, given there are costs with notarising anything and any dealings abroad are often less straightforward than dealing with investments in the UK, before you pass away it is usually better to:

• think about selling off all of your overseas assets (e.g. shares, cash in overseas bank accounts and overseas houses); and
• moving the money back to the UK if the UK is your main residence.

Another option is to gift the overseas assets during your lifetime and completing their transfer. This reduces the cost and the stress on your close relatives of sorting it out after you have passed away. You should certainly cash in very small shareholdings early on. The cost of sorting it out later may severely reduce the value of such holdings.

Managed funds that include interests in foreign countries are less of a problem. For example, funds in your pension. A manager would hold the shares for the investor and the investor would not directly own the shares. So you can hold onto them without the same hassle.

Record what you have and keep it with your will

If you do prefer to keep the investments, then ensure you have a record of what you have. Also log the contact details for each company you hold shares in. Keep these lists with your UK will. This makes it easier for your executors and should help speed up the probate process. We have experience of one case where several years after the death shares in foreign companies were still turning up. It was quite a hassle for the deceased’s aged executor, who never knew what would turn up next.

This is based on the advice of one of our founders, David. He is a notary and has seen many of these transactions himself.