An underrated topic under corporate law is that of transmission of shares. This may be because the issue usually arises where a person who is a shareholder of a company either dies or is declared bankrupt. In our Nigerian society, people usually prefer not to deal with issues relating to death for sentimental reasons. However, it is good practice to prepare for death by drawing up a will to distribute all assets inclusive of shares held by an individual.
When a shareholder dies, his personal representatives are the only persons recognised under company law as having any interest in the shares held by the deceased. The procedure by which ownership of shares held by a deceased shareholder is transferred to his personal representatives is called transmission of shares. It is the responsibility of the directors of the company to request for the relevant documents from the personal representatives to prove their entitlement to the shares. These documents must include evidence of a grant of probate to a will or the issuance of a letter of administrator where the deceased shareholder died intestate (i.e. without leaving a will). The personal representatives are usually given three options by way of notice from the directors –
- to elect to be registered as members of the company;
- to transfer the shares to a third party;
- or to forfeit the shares to the company as a result of any restrictions affecting transfers of shares contained in any shareholders’ agreement between the shareholders of the company or in the company’s Articles of Association. In such a case, a compensation is usually paid where the shares were fully paid for by the deceased shareholder.
The steps to be taken where an issue of transmission of shares occur provide protection for both the company and the personal representatives of the deceased shareholder. Regarding the company, the directors may, after 90 days of serving notice, withhold payment of dividends, bonuses or all forms of payments accruing to the shares until the terms stipulated in the notice have been complied with.
For the personal representatives, the steps taken by the company to ensure that the persons entitled to the shares to be transmitted are indeed entitled to the shares also serve as a defence to any subsequent claim to ownership of the shares. In conclusion, individual shareholders should seek advice on requisite steps to be taken to ensure that their shares eventually pass on to persons of their choice whenever they die.
The contents of this news alert are meant for the general information of our clients and friends and do not amount to legal advice. All enquiries on the subject may be made to: firstname.lastname@example.org
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