Mortis causa transfer of shares and participations

Is the status of partner of a company inherited, or do the pre-existing partners have the right to keep the shares or participations?

A person’s estate may include stocks and shares. The partner can plan his succession by determining in his last will and testament how they are to be awarded. The bylaws may regulate the transfer of shares or holdings. Restrictions on the free transmissibility of shares can be set. 

As for the most common testamentary dispositions, we find the following: 

• Assigning the shares of the company or the shares to a specific person. 
• Bequeath the company shares to a specific person. 
• To constitute a usufruct in favour of the widowed spouse. 

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The mortis causa transfer of shares and participations

Article 124 of the LSC (Corporations Act) regulates the “mortis causa” transmission of shares. Restrictions or conditions on transmissibility by cause of death will only apply when established by the statutes. In this case, the company must present an acquirer or offer to acquire the shares itself. Their value will be the reasonable at the time the transfer was requested to be registered in the register of registered shares. This reasonable value must be determined by an independent expert, at the request of any interested party. 

Article 110 of the LSC regulates the transfer of shares in the company due to death. Free transferability is established. The company shares may be inherited without any restriction. The transmission confers the status of partner to the heir or legatee.  

Nevertheless, in its second paragraph, this article establishes a preferential acquisition right for the testator’s shares. This right is conferred in favour of the surviving shareholders and, in their absence, to the company. To do so, it must be stated in the bylaws. This right must be exercised within three months from the date the company was notified of the inheritance. Likewise, the company participations must be valued at the reasonable value they had at the time of the death of the deceased. 

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Distribution of dividends

Until now, the distribution of dividends depended on a general meeting without any limitation. Limitations apply to the reform of article 348 LSC. When is the obligation to distribute dividends? What happens if that obligation is breached?

What happens if the owner of the shares or participations dies without planning his succession?

It may happen that the deceased has not distributed the shares or the social participations of his ownership by testamentary disposition. With the acceptance of the inheritance and before proceeding to its partition, an hereditary community is constituted. Therefore, with the inheritance’s acceptance the shares or participations are understood to have been acquired by all the heirs.  

Each successor is entitled to all the shares and participations owned by the deceased partner. They do not have the condition of individual partners, only through the hereditary community. 

Once the inheritance has been accepted, the heirs will have the power to distribute it as they consider appropriate. In the absence of an agreement, the law refers expressly to the division of inheritance procedure. 

What effects does it have on the company?

As long as the inheritance has not been accepted, the shares or participations do not have a particular owner. This results in a lack of legitimacy. The company cannot recognize as a partner who is not a legitimate owner. However, the condition of partner can be exercised by a representative designated by the heirs.  

Once the inheritance has been accepted, the heir must prove this circumstance and communicate it to the society.  Likewise, he must request the inscription of the transfer in the corresponding book (register of partners or registered shares). 

The unsettled inheritance cannot be registered in the register of the company. It would suppose an indetermination in the ownership of the social participations and shares. 

What would happen in case of dividend distribution during the period in which the inheritance is in hereditary community?  

Article 91 of the LSC establishes that each share and participation confer to its holder the condition of partner. According to Article 93 LSC, the partner has the right to participate in the distribution of corporate profits.  

If the inheritance has not been accepted by the heirs, such dividends would increase the estate that will eventually be inherited. These dividends would increase the amount corresponding to each quota, benefiting the co-owners of the inheritance community, once accepted. 

If this article has been of interest, we also suggest you to read the following article published on our website: Loyalty Shares 

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