What happens to BC company shares when the owner dies

A company does not die with its owner. It continues to exist, with its bank accounts, contracts, employees and obligations. What changes is who owns the shares and, often, who has authority to run it, because the owner was frequently also the only director.

This article is for families and executors dealing with a private BC company after the owner's death. It explains how the shares pass, who can act for the company in the meantime, and how the will, the articles and any shareholders' agreement fit together.

The shares become part of the estate

Under section 56 of the Business Corporations Act, a share in a company is personal estate. When a shareholder dies, the shares pass to the deceased's personal representative, the executor named in the will or an administrator appointed by the court, who holds them for the beneficiaries. Under section 142 of the Wills, Estates and Succession Act, the personal representative has the same authority over the estate as the deceased would have had if living, subject to the will and the law.

The exception is shares registered jointly with another person as joint tenants. On a death, those generally pass to the surviving joint owner, and section 115(2) of the Business Corporations Act treats them differently from shares held in the deceased's sole name.

Who can exercise the shareholder's rights

Section 115 says that, despite anything in the company's articles, the personal representative of a shareholder has the rights, privileges and obligations attached to the shares, even before being registered as a shareholder, once appropriate evidence of the appointment is provided to the company.

In practice, that evidence is usually a grant of probate or administration. To have the shares registered in the personal representative's name, or in the name of someone the representative designates, section 118 requires a declaration of transmission, the share certificate if there is one and, on a death, the grant or other evidence of the death and of the claim to the shares. Section 119 makes those documents sufficient authority for the company to register the transfer, despite the articles. See do you need probate in BC for when a grant is required.

The company may have no director

A director ceases to hold office on death (section 128), and every company must have at least one director (section 120). If the deceased was the only director, nobody may have authority to sign cheques, pay staff or deal with the bank.

Section 135 provides the way out. If there are no directors in office, shareholders holding more than half of the votes can sign a written instrument empowering an individual to call a shareholders' meeting and appoint interim directors, or the voting shareholders can appoint directors by unanimous resolution. Once a new director is in place, the company must file a notice of change of directors within 15 days (section 127). Because these steps rely on exercising the shares, the timing of the executor's authority matters.

How the will, articles and shareholders' agreement interact

• The will decides who ultimately receives the shares, or the residue that includes them, and who the executor is.
• A shareholders' agreement may override what the family expects. Many require the estate to sell the shares to the surviving owners or the company on death, at a set price or formula, sometimes funded by insurance. The executor is bound by those terms.
• The articles may restrict transfers, for example by requiring directors' approval before shares move from the estate to a beneficiary.

Where these documents point in different directions, the executor needs advice before distributing anything. If you are a living owner planning ahead, our article on estate planning for BC business owners covers the steps that avoid these problems.

The tax side the executor should not overlook

Under section 70(5) of the Income Tax Act, a person who dies is deemed to have disposed of their capital property, including private company shares, at fair market value immediately before death. That can produce a significant capital gain on the deceased's final return. Section 70(6) allows a deferral where the shares pass to a surviving spouse or common-law partner resident in Canada, or to a qualifying spousal trust.

The executor will need a valuation of the shares and should involve the company's accountant early, because some post-death tax planning has time limits.

First steps for an executor

• Find the will, the company's minute book and articles, and any shareholders' agreement.
• Identify the other shareholders and directors, if any, and the company's accountant and bank.
• Keep the business secure and operating where possible, and avoid signing for the company until someone has authority.
• Plan the probate application and the director appointment together. Our guide to executor duties in BC covers the wider estate.

Dealing with a company after an owner's death? Get the authority sorted first

Our business lawyers can review the will, articles and shareholders' agreement, appoint new directors, register the transmission of shares and coordinate the company steps with the probate application and the estate's accountant.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.