What happens to shares in a business when someone dies?
When someone who owns shares in a business passes away, the process of what happens next depends on a few things—mainly what kind of shares they owned, what their will says, and what the company’s rules allow. In the UK, shares can usually be inherited, but sometimes they are sold or transferred depending on the situation.
Ownership passes through the estate
When a shareholder dies, their shares become part of their estate. This means they are treated like other assets such as property or money. The executor of the will is responsible for managing these assets and following the wishes of the person who has died. If there is no will, the estate is handled under the UK’s intestacy rules, which say who inherits what.
If the shareholder left a will, they may have named someone to inherit the shares. That person does not take ownership straight away. The executor needs to get probate (a legal document giving them the right to manage the estate) before the shares can be officially transferred.
According to the Office for National Statistics, around 59% of UK adults have a will. This means many estates, including shares, are managed under set instructions. Without a will, the process may take longer, and shares could go to someone the deceased may not have chosen.
Company rules and shareholder agreements
Even if someone is named in the will to receive the shares, it’s not always guaranteed they can keep them. It depends on the company’s Articles of Association (the rules for running the business) and any shareholder agreements in place. Some private companies have rules that give other shareholders the right to buy back the shares before they pass to someone new. This is called a “pre-emption right.”
In some cases, the company may not want a family member or outside party to become a shareholder. If this happens, the shares are often bought back by the company or offered to existing shareholders. The person inheriting them would then receive the value of the shares in cash instead of the shares themselves.
A 2023 survey by PwC found that 42% of UK private businesses have formal succession plans in place. This often includes rules about what happens to shares when a shareholder dies, to avoid uncertainty or conflict.
Inheriting or selling the shares
If the company allows it and the person named in the will is accepted, the shares can be passed on to them. They will then become a shareholder with all the rights and responsibilities that come with it. In some cases, especially with listed companies, the shares can simply be sold and the money added to the estate.
Whether inherited or sold, the value of the shares may be subject to inheritance tax if the total estate is over the tax threshold. This is something executors and families need to be aware of.
Conclusion
In the UK, shares are usually treated like other assets when someone dies. They can be inherited, sold, or bought back by the company, depending on the shareholder’s will and the company’s rules. Planning ahead with a clear will and understanding the company’s policies can make the process smoother for everyone involved.