Inherited Shares in a private company

Cindyyyy

Hi all,

Recently my husband just passed away and he left a will. In the will, he inherited all his estates to me, including the company shares. He has big portion of shares in a real estate company in a private company in England. The company runs pretty well. I am very sure that i would continue to be the shareholder in the company by replacing his place. Because, it can give extra income & good for the future of our kids. I would like the shares to be transferred to me with rights to vote and earn the dividend as i have discussed this with the other shareholders. 

The company has quite huge capital & assets. The remaining shareholders also planning to keep continue running the company because it gives good profit. On top of that, thinking about the hustle and efforts of my deceased husband in the past few years of running and growing the company made me fully sure about keeping the shares instead of selling it off. However, I found in a website that stated “beneficiary can’t sell the shares in a private company”. 

What does it mean?
Anyone has the ideas about it?

As i am going to keep the shares, and if one day anything happens to me, I definitely want the children to inherit it (its up to them either to keep or sell it later) but if we unable to sell it one day it will be complete wasted. Even though the company runs well but if we can’t sell it one day (if we wanted to), then the investments are not worth it especially  the company has good value. 

My question is,
is it true that the beneficiary of the inherited shares in a private company can’t sell the shares either when the receive it or one day in the future?

I would highly appreciate your kind reply 🙏🙏
 
Thank you

Keep_pedalling

What website did you see this on, because it is nonsense?

If this shareholding is substantial I think you would be wise to take some professional advice. Holding a large chunk of your assets in a single company is very high risk especially a private one that is not traded on the major markets. 

Cindyyyy

Its on informdirect.co.uk

Yea you said it right..

Hoenir

From company's house you can obtain a copy of the most update version of the company's 'Articles of Association'.  Contained within will be a section on shareholders rights. There may well in addition a shareholders agreement. Though the A of A always take precedence legally. 

Determining a value for shares held in a private will require external advice. Then there's the challenge of finding a buyer.  Existing shareholders can play hardball in an attempt to drive the price down or simply may not wish to increase their stake for other good reason. Hopefully though this eventuality was thought through at the inception of the company and duly notated.  

Mands

There may be restrictions on who you can sell the shares to. For example it might be possible to sell to another shareholder but not to someone unconnected with the company.

The memorandum and articles of association, available from Companies House, should detail how shares can be sold. You can download those for a small fee.

But the Company Secretary could also advise you. This is part of their role and they probably anticipate having this conversation with you.

I'm sorry for your loss,
Mands

user1977

Mands said:

The memorandum and articles of association, available from Companies House, should detail how shares can be sold. You can download those for a small fee.

Very small - it should be free (assuming they're from relatively modern times).

Marcon

Mands said:

There may be restrictions on who you can sell the shares to. For example it might be possible to sell to another shareholder but not to someone unconnected with the company.

The memorandum and articles of association, available from Companies House, should detail how shares can be sold. You can download those for a small fee.

But the Company Secretary could also advise you. This is part of their role and they probably anticipate having this conversation with you.

I'm sorry for your loss,
Mands

A private company doesn't have to have a company secretary, so there may not be one to help OP.

Keep_pedalling said:

What website did you see this on, because it is nonsense?

It isn't nonsense; I think it's a (partial) quote taken out of context from a highly reputable company secretarial website. I suspect there are references to checking the articles to see what consents are required, pre-emption etc.

Nobody seems to have given OP the link needed to get the articles: https://www.gov.uk/get-information-about-a-company

OP, this is a tough time for you. I think you are over-estimating the amount of properly-informed help people on a public forum can give when they've not seen any of the relevant documentation. Looking at your other questions (eg https://forums.moneysavingexpert.com/discussion/6484060/remortgage-btl-properties-under-ltd-company-inheritance#latest) you need to get professional help from a solicitor, and ensure they have sight of the will, details of the companies, mortgages etc. At best, people here can only give 'pointers' to what might or might not prove to be the case. 

relaxtwotribes

It sounds like you will need some good financial planning advice.  This will include consideration of gifting some or all of the shares to your kids, because do so now and you will incur no liability to capital gains tax (all your husband’s liability to CGT is eradicated on his death) plus the gift will be free of inheritance tax liability if you survive for seven years.  Clearly you will need to ensure your own financial needs first.

Malthusian

I think the text the OP read from informdirect.co.uk may have been this:

It is quite possible that the Personal Representatives will honour the pre-emption rights by offering the deceased’s shares to the existing shareholders but find no takers. This leaves them free to transfer the shares to the beneficiaries of the deceased’s estate. However, the beneficiaries may never be able to sell their shares in a private company.

Emphasis added. The article is correct - it's "may never be able" rather than "can't". 

Selling shares in a private company is very difficult; it may be impossible to get a price for the shares that would compensate for the loss of income. Very few people would be interested in paying to become a minority shareholder  in a private unlisted company (lots of risk and no real power). The obvious buyers are the other shareholders, but if they can't raise the funds there's not a lot the OP can do about it. For most people "may never be able to get a decent price" is the same thing as "may never be able to sell".

Ideally the company would have taken out a Shareholder Protection life insurance policy on the OP's late husband so that when he died, the surviving shareholders could buy the OP out. It would be sensible for them to do the same for the OP so that they can buy out her heirs when she dies in turn. Evidently they didn't bother the first time around, but making a mistake once is not a good reason to make it a second time.

Cindyyyy

relaxtwotribes said:

It sounds like you will need some good financial planning advice.  This will include consideration of gifting some or all of the shares to your kids, because do so now and you will incur no liability to capital gains tax (all your husband’s liability to CGT is eradicated on his death) plus the gift will be free of inheritance tax liability if you survive for seven years.  Clearly you will need to ensure your own financial needs first.

Thanks for your response,

If in case I gift the shares to each of my children ( 3 of them) with equal portion.
What would be the tax implications?
Do i need to pay inheritance tax as soon as I gift the shares ? If i survive within 7 years

what about CGT? Upon transferring, do i have tax bills for that? 

Highly appreciate your kind reply 
🙏

Marcon

Cindyyyy said:

relaxtwotribes said:

It sounds like you will need some good financial planning advice.  This will include consideration of gifting some or all of the shares to your kids, because do so now and you will incur no liability to capital gains tax (all your husband’s liability to CGT is eradicated on his death) plus the gift will be free of inheritance tax liability if you survive for seven years.  Clearly you will need to ensure your own financial needs first.

Thanks for your response,

If in case I gift the shares to each of my children ( 3 of them) with equal portion.
What would be the tax implications?
Do i need to pay inheritance tax as soon as I gift the shares ? If i survive within 7 years

what about CGT? Upon transferring, do i have tax bills for that? 

Highly appreciate your kind reply 
🙏

You need to get professional advice. The answers will depend on the values involved and other factors, so could be hopelessly wrong and mislead you as a result.