Shareholders Agreement Inheritance

If the articles of association of a company do not contain specific provisions in this area, executors and beneficiaries are not formally recognised as shareholders and may not restrict the powers of a director, unless they submit a judicial application requesting the rectification of the company`s register of shareholders. By inserting certain conditions in the shareholders` agreement, such as for example. B the right of pre-emption, shareholders can prevent a new owner from replacing a deceased owner. `In all cases where the undertaking has no shareholders or directors following the death, the personal representatives of the last deceased shareholder shall have the right to appoint a person as director by written notification.` Or the shareholders` agreement could include agreements for the purchase of interest with a longer payment term and a defined valuation method. The integration of the provisions relating to the CDA achieves certain objectives. First, it ensures that the funds are used as intended. For example, if the CDA consists of life insurance products that will be used to pay a given shareholder`s income tax debt as a result of the presumed sale of the shares in the event of death, the capital dividend must be paid to those specific shares and not to other shareholders, as intended. Alternatively, the proceeds of life insurance may be paid to the remaining shareholders in order to purchase the shares of the deceased shareholder, and it should be ensured that the dividend of the capital is distributed exclusively on the shares held by the remaining shareholders. In both cases, unintended results are avoided by correct wording. Or there may be an option agreement that will be triggered in the event of death and that will allow the beneficiaries to buy back the remaining shareholders.

Such an option agreement may be covered by a life insurance policy in order to provide the money needed for this purpose. While transfers that are not in accordance with a shareholders` agreement may be authorized with the agreement of the other shareholders, such consent, if not obtained, may disrupt estate planning and lead to unintended consequences. Directors must enter into a majority agreement before they can prevent a transfer of shares, and this is not always easy. There are several scenarios where difficulties can arise: cross-option agreements are often backed by life insurance for each owner, held in trust for the good of others. The policy is paid in the event of death and allows the surviving owner (or the business itself, provided there are execrable reserves) to buy the deceased`s stake in the business without causing a financial crisis for the business, while immediately releasing cash to the deceased`s family. . . .

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