While a Private Company, Close Corporation or Shareblock Company does not form part of a deceased’s estate, as these are separate entities to the deceased, shares held by a deceased in a Private Company, member’s interest held by a deceased in a Close Corporation and shares held in a Shareblock Company do form part of their deceased estate.
How the deceased’s shares and members interest are dealt with in a deceased estate is determined by factors such as:
- The provision of the deceased’s Will
- The Company’s Memorandum of Incorporation (MOI) as there may be restrictions regarding whom the shares may be transferred to
- Shareholders Agreement
- The Close Corporation Act
- Association Agreement, if one has been signed
- Buy and Sell Agreement
South African Revenue Services (SARS) approval is required for the valuation of shares held by the deceased in unlisted companies, member’s interest in a close corporations and shares held in Shareblock companies. Shares and/or member/s interest that are bequeathed to a surviving spouse and which are not sold by the estate do not need to be approved by SARS.
Documentation including, inter alia, valuation of the shares and members interest, annual financial statements as close as possible to date of death, annual financial statements two years prior to date of death, REV 246 form should the company or close corporation hold a fixed property, are submitted to SARS for the Commissioner to approve the valuation. Once final approval of the valuation of the shares and/or member’s interest has been received from SARS, the valuation can then be used for estate purposes and the drafting of a Liquidation and Distribution Account.
Loan Accounts are not approved by SARS but are reflected in the Liquidation and Distribution Account as either an asset (positive loan account) or liability (negative loan account).
On death of a shareholder and/or member, the executor will claim the loan account from the Company and/or Close Corporation, this could lead to a liquidity problem for the business should adequate planning not have been done.
Signing of personal suretyships or co-principal debtor for the business could also be claimed from the deceased’s estate should no contingency plans have been put in place for these debts.
Transfer of the shares and/or members interest takes place once the Liquidation and Distribution Account has been approved by the Master of the High Court and the statutory period of 21 days has surpassed with no objections having been received by the Master of the High Court.
