It is not uncommon for two people with similar goals to come together, form a company and develop a good business.

One or both will be a director and each will hold shares either equally or in unequal amounts depending on initial contributions.

What happens when a shareholder dies? Does the surviving shareholder simply carry on alone with an informal plan to ‘do the right thing’ for the family of the deceased at some undetermined point in time?

Section 1072A of the Corporations Act says the personal representative of a deceased shareholder is entitled to the same rights as the deceased whether the representative is registered as the shareholder or not.

A spouse/defacto named as the executor of the deceased’s will and armed with the death certificate immediately has the powers of the now deceased shareholder.If the deceased was the major shareholder then the spouse/defacto can take immediate control. An equal shareholding means an equal say in the running of the company.

I was recently instructed by a sole director but minority shareholder who had a verbal understanding with the majority shareholder when the company was formed years ago and now the majority shareholder was recently deceased.

Informal understandings were immediately ignored. The spouse used her majority shareholding to call a shareholders meeting and appoint two additional directors. The former sole director was now in the minority and out in the cold.

Are you a shareholder in a private company? What plans do you have in place if one of you dies or becomes mentally disabled? Still think that handshake agreement will be sufficient?