What To Do When A Director or Shareholder of a Company Pass Away ?
It is very important to know the legal steps to take when a shareholder of a company dies in Singapore. As you read on, you will see all the legal steps to follow upon the death of a shareholder.
However, you will need to know the differences between a Share Transfer and a Share Transmission.
Share Transfer vs Share Transmission
We can pass down shares legally from person to person in two different ways.
Share transfer is the first method. As a shareholder, you can voluntarily initiate a share transfer at any time. When shareholders want to transfer their shares, they must document their intentions using an official document called the instrument of transfer. The shareholders will also have to pay stamp duty.
It is important to note that share transfer is not applicable in a legal event such as death. Share transmission is the only method for passing the shares of a dead shareholder to another person. Share transmission neither requires the execution of instrument of transfer nor the payment of stamp duty.
The death of a shareholder is enough to trigger share transmission. This triggering is applicable to shares in private or public companies.
What Happens To The Shares When a Shareholder Pass On?
While share transmissions do not have excessive formalities, certain rules in the company’s constitution still affect the processes. For instance, the company’s constitution often specifies the person who is eligible to receive transmitted shares.
If the company is using the unamend Model Constitution, then the share transmission rules in the Model Constitution are likely to determine who the shareholders can transmit their shares to.
If the shareholder is a joint shareholder of the company
In line with the Model Constitution, a company recognizes only the surviving shareholder(s) as the eligible recipients of the deceased’s interests if the shares are held jointly from the outset.
In other words, the joint shareholders will receive the legal title to the shares upon a shareholder’s death. Thereafter, the surviving shareholders have the right to manage the shares.
If the shareholder is a sole shareholder of the company
When the sole shareholder of a company dies, the company recognizes only the personal representatives of the deceased.
If the shareholder left a will behind, then the term “personal representative” rightly refers to an executor. If the shareholder fails to leave a will behind, then an administrator becomes the proper personal representative.
Upon the death of a sole shareholder of the company, the personal representative must contact the company and tender letters of administration or probate of will. The personal representative must enter his or her names and addresses in a register to submit to the company. Also, the register must include the exact date which the sole shareholder pass on.
However, you should note some companies in Singapore can restrict how the personal representative deal with shares. This kind of restriction is always in line with the provisions of articles that the company utilizes.
Let’s use a practical example to illustrate the role of a personal representative. For instance, if a company’s sole shareholder left a written will for his or her children, then it is the responsibility of the personal representative to distribute such shares to the children according to the written will.
In a situation where the company’s sole shareholder was equally the company’s director, then a new director must be appointed since every company in Singapore must have at least one director who resides in Singapore.
How to Effect Share Transmission to the Deceased’s Personal Representatives
We cannot automatically transmit shares to the deceased personal representatives. Instead, the personal representative must take some legal steps before the transmission will take place. These steps are important because they enable the company to confirm the representative’s status as the legal personal representative for the deceased.
If the deceased shareholder left a will, the executor needs to apply to the court for a Grant of Probate.
In case the deceased shareholder has no will, the administrator will have to apply to the court for the Letters of Administration.
The Letters of Administration and Grant of Probate are legal documents that grant authority to the administrator/executor respectively. It is to ensure that he or she can deal with the assets that belong to the deceased. The administrator/executor cannot receive the transmitted shares without either document.
Restrictions on the Transmission of Shares
The restriction that is common to all companies in Singapore is the one that pertains to the classes of people who are eligible to receive transmitted shares. Other kinds of restrictions that are company-specific are the ones according to company’s constitution.
For instance, the company’s directors have a right to disallow a legal holder of the shares from registering as a member of the company.
All the likely variations to the transmission restrictions are endless since they depend on what companies draft in their constitution. Hence, it is always necessary to keep an up-to-date copy of the company’s constitution.
The process of Striking Off a company upon the death of a sole shareholder who also acts as the sole director
As mentioned above, the default arrangement is that his or her shares will transmit in line with the company’s constitution.
In the event that the person who receive the transmitted shares have no intention to continue operation, but to proceed with a company strike off, the process of the closing of a private limited company is the same as it is for any other company cessation. However, in this particular event, the striking off is only applicable upon the completion of share transmission.
To close a company for good, we highly recommend to approach professional firms for a company strike off. There are many secretarial and accounting firms that offer company strike off services, including Timcole. Timcole Singapore is a professional company incorporation, secretarial and accounting firm in Singapore, offering professionalism and efficiency at affordable fees.
Upon the death of a shareholder, the default arrangement is that his or her shares will be transmitted in line with the company’s constitution. If you are unsure of the transmission restrictions in your company’s constitution, then it would help to read the constitution and seek legal advice. You can speak with our Funeral Director to find out more.