Business after the death of a shareholder: What can a shareholder do for his/her will to be respected as much as possible?

Business after the death of a shareholder: What can a shareholder do for his/her will to be respected as much as possible?

Authors: Ažbe Tušar, Petra Zvržina

This article represents the continuation of the first inheritance law article on inheritance and its consequences to administering and management of businesses in case of death of a shareholder and director.

In the previous article, we presented the option of intestate succession when the deceased does not take any action. However, we are more in favour of the deceased’s activity so that he/she expresses their will in respect of the future of the business during his/her lifetime, even though the legal theory and case-law currently do not yet offer any clear and concrete guidelines.

Generally speaking, anyone can express their will during their lifetime in a form of a testament for the case of death or by taking care of the transfer of their property in a form of other legal transactions.

A testament can be made by anyone capable of expressing their will and at least 15 years of age. A testament is valid when it is concluded in the form and upon conditions determined by the law. The most common forms of a testament are a hand-written testament, a written testament in front of two witnesses and a notary testament, whereas each of these must fulfil certain additional conditions. A testament may, in addition to the expression of will on who shall be the heir and what shall be inherited, also encompass legacy or debit. This means that the deceased could give certain persons the things or rights from their estate, or oblige certain persons to do something to the benefit of others (a legacy). The deceased may also set an obligation for the person that is being given a benefit from their estate (a debit). It depends from case to case on what the will of the deceased is and how to express such will in a form of a legacy or a debit (e.g. conclusion of certain business transactions of the company, etc.).

Certain business transactions, the consequences of which are far-reaching and not limited to the lifetime of the deceased can already be concluded during lifetime. In general, an authorisation can also be given for the case of death and with effect after death, of course with certain limitations and the possibility of cancellation by heirs.

The question remains, whether such authorisations are given by the deceased as the shareholder or the director. Such authorisations are indeed needed in practice, taking into account that with the death of a shareholder or a director, the company does not “die” too, but rather continues with its business activities – and for that, it usually needs a shareholder, and most certainly a manager, e.g. a director.

The authorised person may be determined contractually or in a testament as an executor of a will (i.e. a person that is explicitly determined by the deceased and entrusted to execute everything required for the fulfilment of the provisions of the testament). Nevertheless, it might be worth pointing out that the authorised person and the executor of a will do not have an obligation to assume such obligation, therefore, the choice of the right person is very important. The deceased may determine other obligations of an executor of a will, but their primary duty is to take care of the deceased person’s estate, administer it, take care of payments for debts and legacies, and especially to execute the testament in accordance with the deceased’s will.

The legal theory abroad emphasises that a shareholder may, for example, determine the certain so-called “inheritance clauses” in the articles of association to determine the consequences in case of the shareholder’s death.

It must also be kept in mind that at the moment of death of the deceased, a hereditary community is established, meaning that until its division, the property of the deceased is jointly administered by the heirs, which in our opinion includes the rights to administer a company. From the moment of death, the heirs assume the position of the deceased and have the chance to change his/her will to a certain extent. If they reach consensus, the heirs can prevail over the will of the deceased, e.g. an agreement between the heirs (settlement) in the inheritance proceedings, a waiver of the right to heritage with an irrevocable statement, disregarding a possible testament. The deceased therefore cannot, even with the legal transactions described in this article, completely avoid the uncertainty of the faith of their company after death. He/she can nevertheless contribute to as much certainty as possible by explicitly expressing his/her will, even if the family is aware of it. Despite the fact that currently, the validity and enforceability of such expressed will in case-law and legal practice is not yet completely established, it is indeed better that a shareholder and a director expresses such will. By doing that, he/she appeals not only to the court handling the inheritance proceedings, the register etc., but also to the moral duty of the family or the heirs to take into consideration the deceased’s will with respect to the future of the company.