I would be grateful for anyone’s thoughts on whether they think the following gifts fails or not:
" I give my business known as xxx (co. number xxx) (the Business) together with all property belonging thereto to xxx, xxx and xx x in equal shares"… There are some conditions to the gift but I don’t believe the conditions will influence my query.
The business that is referred to is a limited company and the testator owns all shares bar a few B shares which hold no value. The gift as drafted does not refer to the shareholding but is the wording sufficient that it will allow what I understand was the intended gift of the Testators shareholding to the beneficiaries in question?
I can’t quote you any precedent but on a straightforward reading, it seems clear to me that the clause must refer to the testator’s shares in the company.
That wouldn’t necessarily extend to other interests in the company such as a directors loan account.
Practitioners textbooks on wills e.g Theobald refer to the rule of construction “falsa demonstratio non nocet” or wrong description. The Court will look at the language with the aid of any admissible extrinsic evidence and can reach the conclusion that the will maker intended to pass something, which it identifies as wrongly described, and then decide that the will applies to it nonetheless. Many lay people of great entrepreneurial flair fail to appreciate that in law they own the shares in the company and not its underlying assets or business and may well colloquially describe them as “my business”. The express use of the company number here seems to make it close to certainty that this rule would apply.
Just a point, shareholdings on death, in private limited companies are controlled by company law. The executor of the will receives the shareholding, - they are then able to transfer to beneficiaries.
Poorly drafted, agreed. Shareholder agreements may control the shares on death, cross option and articles may have a bearing - cannot fetter company law.
I also fully agree with Andrew’s analysis. I also agree that any Directors’ loan account asset or liability would not be included within the gift. I believe any directors’ loan account asset/liability would need to be dealt with as part of the residual estate if it is not separately mentioned in the Will.
this is a good point. The same is true in China estate practice. Inheritance of corporate shares is subject to the Articles/Memorandum of the company with regard to how the decedent’s shares shall be dealt with.
By the way, Bish, when you say “the executor of the will receives the shareholding”, does it mean that the shares are registered in the executor’s name for the time being before distributing the same to the beneficiaries? Or the executors are not generally registered but just that they have the power to manage and dispose of the shares during estate administration? Just my query as a foreign lawyer. thanks.
Yes - the PR (transmittee) must instigate the transfer: - The model artilces below reflects the legsilation (Company Act 2006) - they can execute a transfer direct to the beneficary if the artcles allow (28)(2).
27. Transmission of shares
27.—(1) If title to a share passes to a transmittee, the company may only recognise the transmittee as having any title to that share.
(2) A transmittee who produces such evidence of entitlement to shares as the directors may properly require—
(a) may, subject to the articles, choose either to become the holder of those shares or to have them transferred to another person, and
(b) subject to the articles, and pending any transfer of the shares to another person, has the same rights as the holder had.
(3) But transmittees do not have the right to attend or vote at a general meeting, or agree to a proposed written resolution, in respect of shares to which they are entitled, by reason of the holder’s death or bankruptcy or otherwise, unless they become the holders of those shares.
Exercise of transmittees’ rights
28.—(1) Transmittees who wish to become the holders of shares to which they have become entitled must notify the company in writing of that wish.
(2) If the transmittee wishes to have a share transferred to another person, the transmittee must execute an instrument of transfer in respect of it.
(3) Any transfer made or executed under this article is to be treated as if it were made or executed by the person from whom the transmittee has derived rights in respect of the share, and as if the event which gave rise to the transmission had not occurred.