In BC estate law, private company shares become part of your estate upon death, transferring to your personal representative until distribution. You can avoid probate fees (approximately 1.4% of share value) by using a multiple wills strategy—creating separate wills for probate and non-probate assets like shares. Be aware that shareholders’ agreements may override your will’s provisions, potentially forcing share sales. Tax implications include deemed disposition at fair market value, triggering capital gains tax. Proper planning with legal counsel guarantees a smooth shift of your business interests.
The Legal Status of Private Company Shares in Estates
When a shareholder passes away, their private company shares become part of their estate as personal property, subject to BC’s estate laws and regulations.
As distinct assets, these shares transfer to the personal representative of the estate, who is responsible for managing them until final distribution to beneficiaries.
Under the BC Business Corporations Act, shares can often be transferred without requiring a Grant of Probate, which distinguishes them from many other estate assets.
This unique status allows for strategic estate planning opportunities, including the use of multiple wills—one for probate assets and another specifically for private company shares to potentially avoid probate fees.
This approach can greatly reduce the overall tax burden and administrative complexities for the estate.
Transmission of Shares to Personal Representatives
Following a shareholder’s death, the process of transferring private company shares to the personal representative involves specific legal mechanisms unique to corporate assets.
In BC, this transmission occurs through documentation filed with the corporation, typically without requiring a Grant of Probate first.
You will need to submit the death certificate and will (if one exists) to the company’s directors, who can then authorize the share transfer.
This process is governed by the BC Business Corporations Act and the company’s Articles of Incorporation.
If you are the personal representative, you will temporarily hold these shares in your capacity as executor or administrator until final distribution to beneficiaries.
For sole shareholders, you can elect yourself as director to maintain company operations during estate administration.
Multiple Wills Strategy for Probate Avoidance
To minimize probate fees and streamline estate administration, BC residents who own private company shares can implement a multiple wills strategy.
This approach involves creating two separate wills: a primary will for assets requiring probate and a secondary will specifically for private company shares.
The secondary will, often called a “corporate will,” is not submitted for probate, thereby avoiding the approximately 1.4% probate fee on the value of those shares.
By using a “corporate will,” BC shareholders can bypass probate fees on private company shares, saving 1.4% on potentially substantial assets.
For shareholders with significant company value, this can represent substantial savings.
Directors of private companies in BC can legally transfer shares to executors without a grant of probate, making this strategy effective under the Business Corporations Act.
Your corporate will should explicitly exclude these shares from your primary will to prevent confusion.
Impact of Shareholders’ Agreements on Estate Administration
Shareholders’ agreements profoundly shape how a deceased member’s interest in a private company is handled during estate administration. These binding contracts typically override general estate principles, triggering specific mechanisms when a shareholder dies.
| Shareholders’ Agreement Provisions | Impact on Estate Administration |
|---|---|
| Mandatory Share Sale Clauses | Force executors to sell shares rather than distribute them |
| Valuation Formulas | Determine the price at which shares must be transferred |
| Right of First Refusal | Require offering shares to existing shareholders before others |
| Insurance Provisions | Specify how life insurance proceeds fund share purchases |
| Timelines | Establish deadlines for completing share transfers |
You will want to guarantee your estate lawyer thoroughly reviews any shareholders’ agreement early in the planning process. This prevents your executor from facing unexpected obligations that might conflict with your will’s instructions regarding your business interests.
Valuation Methods for Private Company Shares
Determining the fair market value of private company shares presents one of the most challenging aspects of estate administration.
Unlike publicly traded companies with readily available market prices, private shares require specialized valuation approaches.
You will typically encounter three primary methods: the asset-based approach (calculating net asset value), the income approach (using discounted cash flow analysis), and the market approach (comparing to similar businesses).
Professional valuators often apply a weighted combination of these methods for accuracy.
In BC estates, the Canada Revenue Agency requires fair market valuation at the date of death for tax purposes.
Shareholders’ agreements may specify particular valuation formulas that must be followed.
Consider that minority shareholdings often warrant discounts for lack of control and marketability, potentially reducing the assessed value by 15-40%.
Tax Implications When Transferring Private Shares
When a deceased shareholder’s private company shares transfer to beneficiaries or are sold, significant tax consequences can arise that may substantially impact the estate’s value.
In BC, the Canada Revenue Agency deems these shares disposed of at fair market value upon death, potentially triggering capital gains tax. Without careful planning, this can create a substantial tax burden for your estate.
You will need to contemplate the adjusted cost base of the shares and available tax exemptions, like the lifetime capital gains exemption for qualifying small business corporation shares.
Additionally, the estate may face double taxation if the company is wound up after death.
Post-mortem tax planning strategies, such as pipeline transactions or loss carrybacks, can help mitigate these implications. Consulting with tax professionals during estate planning is essential to preserve wealth for your beneficiaries.
Sole Shareholder vs. Multiple Shareholder Considerations
The ownership structure of a private corporation dramatically impacts how shares are handled after death, creating distinctly different scenarios for estate planning and administration.
For sole shareholders, your executor can typically transmit the shares without a Grant of Probate and elect themselves as director to maintain business operations. The process is relatively straightforward, following the directions in your will.
In contrast, if you are one of multiple shareholders, a Shareholders’ Agreement likely governs what happens to your shares upon death.
These agreements commonly include mandatory sale provisions, valuation methods, and purchase timelines. They often require remaining shareholders or the company to buy your shares, preventing your beneficiaries from becoming shareholders.
This arrangement guarantees your estate receives fair compensation while protecting the business from untested new ownership.
Corporate Governance During Estate Administration
After a shareholder’s death, corporate governance enters a critical change period where proper management must continue despite ownership uncertainties.
When a shareholder dies, the corporation faces a pivotal transition requiring steady leadership amid ownership flux.
As executor, you will need to guarantee the company maintains operations while the estate is settled.
If you are handling a sole shareholder’s estate, you will likely need to become a director temporarily to authorize necessary corporate actions.
Review the company’s Articles carefully, as they dictate your authority to act without formal probate.
For multiple-shareholder companies, the surviving directors typically continue governance, but you should consult any Shareholders’ Agreement for specific provisions.
Be vigilant about maintaining corporate records, holding required meetings, and filing necessary reports during this change.
Practical Challenges in Distributing Private Company Shares
Distributing private company shares during estate administration presents several practical challenges that executors must steer through carefully. When you are dealing with these assets, you are often confronted with valuation difficulties, transfer restrictions, and potential tax implications that can greatly complicate the process.
Key challenges you will encounter include:
- Determining the fair market value of shares in the absence of public trading
- Managing conflicts between shareholders’ agreements and will provisions
- Addressing potential liquidity issues when beneficiaries need cash rather than shares
- Steering through tax consequences, including potential deemed disposition issues
These challenges often require specialized expertise and careful planning.
Working with professionals who understand both corporate and estate law will help guarantee you are making informed decisions that respect both the deceased’s wishes and beneficiaries’ interests.
How Vest Estate Law Can Help
Steering through the complexities of private company shares does not have to be overwhelming when you are supported by experienced legal counsel.
As a boutique firm dedicated exclusively to wills and estates law in Alberta and BC, Vest Estate Law brings specialized expertise to your situation.
Our team understands the intricate intersection of corporate and estate law that affects private company shares.
We can help you navigate shareholders’ agreements, handle share transfers without unnecessary probate fees, and implement strategies like multiple wills to protect your assets.
If disputes arise during the estate administration process, our litigation experience becomes invaluable.
We will guide you through each step, from understanding your options to executing your chosen strategy, ensuring your family business evolves according to your wishes.
Frequently Asked Questions
Can Family Disputes Affect Private Company Share Transfers?
Yes, family disputes can greatly impact your private company share transfers by causing delays, contested probate, litigation over agreements, and potentially forcing unplanned business sales or management disruptions.
How Long Can an Executor Legally Control Company Operations?
You can control company operations as executor until the administration is complete. This timeframe varies but typically takes 1-2 years, depending on estate complexity and shareholder agreements.
Are Digital Assets Within the Company Included in Share Valuation?
Yes, digital assets owned by the company are included in share valuation. They are part of the company’s overall assets that determine the share value you will receive or distribute.
Can Beneficiaries Reject Inherited Shares With Negative Company Outlook?
Yes, you can reject inherited shares by disclaiming your inheritance. This allows you to avoid potential liabilities while the shares pass to alternate beneficiaries according to the will’s terms.
How Do Marital Agreements Affect Private Company Shares in Estates?
Marital agreements can expressly exclude your private company shares from family assets, specify transfer restrictions upon death, and override default inheritance rules, protecting your business interests from division during your estate’s administration.
Conclusion
Effective estate planning for your private company shares requires careful consideration of both corporate and succession law. You will need to address probate fees, transmission procedures, shareholder agreements, and tax implications. Whether you are a sole shareholder or part of a multi-owner business, having an all-encompassing plan in place guarantees your business legacy continues according to your wishes while minimizing disruption to operations and protecting your beneficiaries.
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Myron Plett
WILLS and ESTATES LAWYER
Myron is a seasoned litigator with nearly twenty years of experience and a broad range of skills that has led to significant successes in the Provincial Court of British Columbia, the Supreme Court of British Columbia. He has also taken his clients to victory before tribunals such as the Residential Tenancy Branch and the BC Human Rights Tribunal.
