Share Transmission: What Happens If a Shareholder Dies in Singapore?
As a shareholder, it is important to consider what will happen to the shares that you hold when you die.
A robust succession plan can help to ensure a smooth transition to the next generation of management and even maximise the value of your organisation. To this end, one crucial concept that you must become familiar with is share transmission.
Share Transmission vs Share Transfer
There are two ways in which the legal title to shares may be passed from person to person.
The first is a share transfer. This is a voluntary process that is initiated by the shareholder. To validly transfer your shares you must execute an instrument of transfer, which is an official document recording the intentions of the parties to transfer and receive the shares. You will also need to pay stamp duty.
For more information, read our other article on how to transfer shares in a private company in Singapore.
Alternatively, the legal title to shares may be passed by operation of law when a legally significant event occurs, such as the death of the shareholder. This process is known as share transmission. In other words, the death of a shareholder will trigger the passing of title in the shares to another person.
Unlike a share transfer, you do not need to execute an instrument of transfer for the transmission of shares to be valid. This is true whether the shares are in a public or private company. Furthermore, share transmissions do not attract the need to pay stamp duty.
Who Might My Shares be Transmitted to?
Although share transmissions may take place with relatively fewer formalities than share transfers, they are still subject to the rules on share transmission stated in the company’s constitution. For example, a company’s constitution will often specify the class of potential recipients of transmitted shares.
If your company has adopted the Model Constitution without amendments to its rules on share transmission, then the following rules on who shares can be transmitted to are likely to apply:
If you are a joint shareholder of the company
According to the Model Constitution, where shares in the company are held jointly, the company can only recognise surviving shareholder(s) as the recipients of the deceased’s interest in the shares.
In other words, legal title to your shares would be transmitted to the other joint shareholders upon your death. The surviving shareholders would then have the power to deal with the shares.
If you are the sole shareholder of the company
Where the sole holder of shares in a company dies, only the deceased’s personal representatives may be recognised by the company as having title to the transmitted shares.
The term, “personal representative” refers to either the executor (if the shareholder had a will) or the administrator (if the shareholder dies without leaving behind a will), both of whom are responsible for administering the deceased shareholder’s assets.
After receiving legal title in the shares, the personal representative then has the responsibility to ensure that the shares (or the proceeds from the sale of the shares) are properly distributed to the rightful beneficiaries who stand to inherit the shares (or their proceeds).
For example, if the company’s sole shareholder had written a will leaving their shares to their child, the personal representative will have to distribute those shares to that child.
If the company’s sole shareholder was also the sole director of the company, a new company director will also have to be appointed as all companies in Singapore are required to have at least 1 director who is ordinarily resident in Singapore.
How to Effect Share Transmission to the Deceased’s Personal Representatives
In order for shares to be transmitted to the personal representatives of the deceased, certain additional steps must be taken in order to confirm the executor or administrator’s status as the deceased’s personal representative at law.
- If the deceased shareholder made a will: the executor must apply to the court for what is known as a Grant of Probate.
- If the deceased shareholder did not make a will: the administrator must apply to the court to obtain the Letters of Administration.
The Grant of Probate and Letters of Administration are legal documents by which the court grants authority to the executor/administrator respectively to deal with the deceased’s assets. Without either document, the executor/administrator will not be able to receive the transmitted shares.
Restrictions on the Transmission of Shares
Aside from limiting the classes of individuals who can receive transmitted shares (as discussed above), your company’s constitution may also prescribe other restrictions on share transmissions. For example, according to the Model Constitution, the directors of the company have a right to decline to register a legal holder of the shares as a member of the company.
The possible variations to the nature of the restrictions are infinite as they depend on the specific drafting of the company’s constitution. Hence, you should refer to your company’s constitution if you are unsure of your company’s share transmission restrictions.
Upon your death, the default position is that your shares will be transmitted in accordance with and subject to the constitution of the company.
If you are unsure of how the constitution of your company governs the transmission of its shares, you may wish to seek legal advice to ensure that your shares end up in the right hands after your passing.
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