How to Transfer Shares After a Shareholder’s Death

The death of a shareholder in a private company can raise urgent legal and administrative questions—particularly when it comes to what happens to their shares. Whether the deceased left a will or not, those shares don’t simply vanish. They become part of the deceased’s estate and must be dealt with properly.

In this guide, we’ll walk through what happens when a shareholder dies, how shares are transferred, what legal agreements might apply, and the tax and business implications to be aware of.

What Happens in the Event of a Shareholder’s Death?

When a shareholder dies, their shares form part of their estate and do not automatically transfer to another party. The right to deal with the shares passes to the personal representative—this could be the executor named in the will, or an administrator appointed by the court if there was no will.

This representative is responsible for managing the estate, which includes identifying and valuing the shares, and then either transferring or selling them in line with the will or intestacy rules.

What Is a Personal Representative?

A personal representative is the person legally authorised to deal with a deceased person’s estate. If there is a valid will, this person is called an executor. If there is no will, the court appoints an administrator.

Before shares can be transferred, the personal representative must usually apply for a grant of probate (with a will) or letters of administration (without a will). These documents prove their legal authority to deal with the estate’s assets—including any company shares.

If Shares Are Included in the Deceased’s Will

If the will specifies who the shares should go to, the personal representative will need to present a certified copy of the grant of probate and a stock transfer form to the company. The company’s directors can then approve the transfer and update the shareholder register.

In most private companies, the new shareholder (the beneficiary) does not automatically gain voting or dividend rights until they are officially entered into the company’s register of members.

If Shares Aren’t Included in the Deceased’s Will

If the will is silent on the shares, or if there’s no will at all, the shares are distributed according to intestacy rules. These rules determine who inherits based on relationship—typically starting with spouses or civil partners, then children, and so on.

This process can slow things down significantly, especially if there are disputes or questions about the company’s value. Until resolved, the shares are usually frozen and cannot be used for voting or dividend payments.

Reviewing the Company Articles and Shareholders’ Agreement

Before any shares are transferred, it’s essential to check the company’s articles of association and any shareholders’ agreement. These documents may include:

• Pre-emption rights: Giving existing shareholders the right to buy the shares before they are transferred to someone outside the company

• Consent provisions: Requiring director or shareholder approval before any transfer can take place

• Restrictions on who can hold shares: Particularly important in family businesses or partnerships

If these documents impose conditions, the personal representative must follow them—even if the will says otherwise.

Cross Option Agreements

Some companies put cross option agreements in place to handle what happens if a shareholder dies. These agreements often allow the surviving shareholders to buy the deceased’s shares, and require the estate to sell them.

Cross option agreements are often backed by life insurance policies, so the surviving shareholders have the funds to buy the shares quickly and maintain control of the business.

Without this kind of agreement, there’s a risk that shares pass to a beneficiary who doesn’t want to be involved in the business—or worse, causes tension within the company.

Things to Consider on Death of a Shareholder

The death of a shareholder isn’t just a legal issue—it’s a business continuity risk. Directors and surviving shareholders should review:

• Whether the will aligns with the shareholder agreement

• If any insurance policies exist to fund a buyout

• The voting impact of the deceased's shares during probate

• The communication strategy with the family or beneficiaries

• The value and liquidity of the shares, especially in tax calculations

Planning ahead with legal documents can prevent disputes and ensure the business continues with minimal disruption.

Transferring Company Shares

Once probate is granted, the company secretary or legal representative will usually:

1. Receive the grant of probate or letters of administration

2. Prepare and submit a stock transfer form

3. Update the register of members

4. Issue new share certificates if needed

The board may need to approve the transfer, depending on the company’s articles. Until these steps are completed, the shares technically still belong to the estate—not the beneficiary.

Tax Implications

When shares pass on death, Capital Gains Tax (CGT) is not payable by the estate. Instead, the beneficiary receives the shares at their market value on the date of death—this is called a “base cost” for future CGT.

However, Inheritance Tax (IHT) may apply. Business Relief may reduce or eliminate IHT if the shares meet conditions—such as being in a trading company for at least two years. If Business Relief applies, the shares may pass free of IHT, which can significantly reduce the estate’s tax bill.

Always get a formal valuation for the shares and seek advice if the estate includes substantial business assets.

Final Thought

The process of transferring shares after a shareholder’s death isn’t automatic, and the steps depend heavily on whether there’s a will, what the company’s governing documents say, and whether succession has been planned properly. With the right agreements in place—such as cross options and shareholder protections—the transition can be smooth. Without them, it can create confusion and delay.