Frequently, legal practice raises the question what happens to the shares of a deceased shareholder in a limited liability company. This question is quite reasonable since, from legal point of view, only company shares are inherited, whereas the heirs do not automatically enter into the relation between the company and the former shareholder. Thus, the deceased shareholder’s heirs do not inherit the shareholding in the company, but only the property rights included in the shareholding. Thus, the heirs of a partner do not acquire voting rights in the general meeting of the company, but they are exclusively entitled to receive from the company the cash equivalent of the shares held by the deceased shareholder (during his/her lifetime).
Acquisition of the testator’s shares
As stated above, shareholding itself, i.e. the company shareholder capacity, is not inherited. Thus, after a shareholder’s death, his/her heirs become share-owners but not shareholders. In order for them to be able to subsequently transfer the inherited shares to third parties, they should initially request “entering into” their successor’s shareholding, and be accepted as new shareholders under the regular procedure.
Partition of company shares
Simultaneously, the heirs should divide and distribute their heir’s shares. In this way, each heir will receive a certain proportion of the shares, as prior to the partition they all jointly co-own their heir’s shares as a whole without any of them having a specific part (even if it is mathematically possible to divide the shares into an exact number).
Admission of the heirs as shareholders
In order for the heirs of a deceased shareholders to be able to further transfer the inherited shares after acceptance of their heritage, they shall apply for admission in the company. The resolution for admission of the heirs as shareholders shall be adopted by the general meeting of the company. In other words, the resolution is adopted by the shareholders who remained in the company after the death of the heir but before the heirs were admitted as shareholders.
The approach is different for a sole limited liability company. As a general legal provision, when the sole owner of the capital has died, the company is dissolved unless the heirs resolve to continue the their testator’s company operation. In this case, among with the resolution for share-partition, the heirs should also adopt a business continuation resolution. If the heirs are not eager to continue the business (for example, if the company’s debts are large amounts) – succession does not oblige the heirs to take over the deceased’s shares. They also have the right to exercise refusal from inheritance.
From practical point of view, some of the documents needed for the procedural steps above include:
- A notarized resolution for share-partition and entry into the testator’s shareholding – to be adopted by the heirs;
- Share-Partition agreement notarized signature and content;
- Applications for admission of new shareholders;
- Resolution of the general meeting of the company to admit the heirs as shareholders.
Entry with the Commercial Register and subsequent share-transfers
Significantly, it should be pointed out that the heirs become shareholders once the documents and actions above have been submitted and entered with the Commercial Register. Only after the above-mentioned entry of corporate changes on the company’s file in the Commercial Register any subsequent actions can be carried out, such as:
- Transfer of shares to the heirs of another partner or to a third party;
- Liquidation of the company.