Welcome to Simply-Docs

New Shareholder Agreement – Transfer to Family & Transfer on Death/Incapacity of Shareholder

January 2024

There may be situations, particularly on the death or incapacity of a shareholder that shareholders may wish to provide an alternative to the standard share transfer provisions. A new template has been created to provide for this situation as well as including a general overriding free share transfer provision within the agreement.

Most shareholder agreements provide that should a shareholder wish to sell or transfer their shares in the company, the other shareholders will have the right of first refusal pro-rata to their current shareholding proportion, before those shares are offered to anyone else. Whilst this is an option and not an obligation to purchase any shares that become available, it is a useful mechanism for shareholders to maintain a level of control over whom the shares may be transferred to as well as an anti-dilution measure.

This new template has been drafted to include two significant carve outs to this. Firstly, there is an overriding provision that allows for a shareholder to freely transfer shares to family members at any time and secondly, a provision that specifically deals with the death or incapacity of a shareholder. 

These are complicated areas, and the parties need to consider what it means for both the company and the other shareholders, should family members with potentially no real experience of the business become shareholders in the company. It is also often assumed that shareholders can leave their shares in a private company to whomever they wish in their Will and there’s nothing anyone can do to stop them. However, this is not usually the case. Only if there is, (1) no shareholder agreement in place; (2) if there is a shareholder agreement in place, it does not address the issue of share transfers; or (3) the company’s articles have specifically been amended to remove the power of the directors to reject share transfers, will the shares pass in accordance with the deceased’s Will. Therefore, should it be the wish of shareholders to transfer shares to their family, it should be specifically stated to be the case in a shareholder agreement. This template is a useful starting point for shareholders considering these issues. 

Note that independent legal and tax advice must be sought given the wide-ranging impact these matters can have.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

Simply-4-Business Ltd Registered in England and Wales No. 4868909 Unit 100, Parkway House, Sheen Lane, London SW14 8LS