Business owners are a notoriously busy lot. Trying to get them to put wills in place can
require persistence on the part of the adviser.
However, care is needed when making wills for business owners as getting
the will in place, on its own, may not be enough.
Trouble can ensue when the share transfer provisions in
the articles of the company, or any shareholders’ agreements, prevent the
deceased’s shares being transferred to the heirs named in the will, or the
trustees of any trusts in the will.
Restrictions placed on transfers are commonly called pre-emption
rights.
Recently I came across a problem ‘waiting in the wings’ in
the articles of a family company set up many years ago. The company’s articles adopted the old
Companies Act 1985 Table A provisions for share transmissions, which allow a
deceased shareholder’s executors to nominate anyone to be registered as the
transferee of the shares. So far so
good. However, there was also an express
provision inserted in the articles stating that share transfers (which included
executor-to-beneficiary transfers) triggered the company’s share transfer
pre-emption rights. These provided that
any shares to be transferred had to be offered to the other shareholders first
(who in this case were not family members).
So even though the will stated where the shares should end up, what the
beneficiaries might have received was just share sale proceeds, not the shares
themselves. This was quite the opposite
of what the owner of the shares wanted.
I am delighted to report a happy ending to this tale,
however. The company’s articles have
since been altered to provide for permitted transfers in certain situations
which will not trigger the pre-emption rights.
Permitted transfers include transfers to certain ‘privileged relations’
or to a family trust. The change has
been made with the blessing of the majority of shareholders needed to effect
the alteration.
Done properly,
writing wills for company owners should involve more than just the lawyer
dusting down their will precedents bible.
A familiarity with the company’s corporate governance documentation is
also required.
