What Happens to Shares when a Shareholder Dies?

When a shareholder dies in Australia, their shares don’t simply disappear. They are generally dealt with as part of the deceased person’s estate, but the practical outcome can depend on several factors.

These include the will, the company constitution, any shareholders’ agreement, whether the shares were jointly held, and whether a trust structure is involved. Let’s look at each of them more closely.

What happens to shares when a shareholder dies?

Shares are assets. If a shareholder dies, shares registered solely in their name will generally form part of their deceased estate.

However, a beneficiary named in the will doesn’t automatically become the company’s registered shareholder on the date of death. Instead, a typical process looks like this:

Shareholder dies → executor or administrator establishes authority → company recognises legal personal representative → constitution and shareholders’ agreement checked → shares transferred or sold → members register updated

Who can deal with the shares after the shareholder dies?

The person who can usually deal with a deceased shareholder’s shares is their legal personal representative.

This is typically how deceased shareholder shares are managed, depending on whether a will exists:

• An executor is appointed when the deceased left a valid will and named someone to administer the estate.
• An administrator takes over when there is no valid will, no executor is willing or able to act, or the court needs to appoint someone else to administer the estate. In this case, letters of administration are often required to delegate authority.

Depending on the circumstances, the representative may need a probate issued by the Supreme Court, which confirms the executor’s authority to transfer shares after death and administer the estate.

Importantly, the executor or administrator doesn’t necessarily become the permanent shareholder. Their role is to administer the estate and deal with the shares in accordance with the relevant legal documents and legislation.

Do shares automatically pass to the beneficiary named in the will?

Not immediately. A will may identify the person intended to benefit from the shares, but managing shares in a deceased estate requires estate administration and formal company transfer processes to be completed first.

There are three distinct concepts:

Position	What it means
Named beneficiary	The will identifies the person who is intended to receive the shares or their value.
Executor or administrator	Has legal authority to administer the estate and deal with the shares.
Registered shareholder	Is recorded in the company’s register of members as the legal holder of the shares.

What does the company constitution say about a shareholder’s death?

The company constitution can materially affect what happens after a shareholder dies. A constitution may include provisions dealing with:

• Transmission on death, including how the legal personal representative is recognised
• Evidence requirements, such as probate, letters of administration, or a certified death certificate
• Director approval, where directors must approve a transfer or may refuse registration in specified circumstances
• Restrictions on transfers, including limits on sales to outsiders
• Pre-emption rights, which may require shares to be offered to existing shareholders first
• Valuation mechanisms, including a formula, an independent valuer, or an accountant-determined valuation
• Compulsory sale or buy-out provisions, which can require the estate to sell shares after death
• Procedures for registering the estate’s representative or a beneficiary
• Rights attached to the shares while the legal personal representative is dealing with them, such as voting rights, dividend entitlements, and access to company information

While a will addresses succession within the deceased estate, a deceased shareholder company constitution may determine how shares can move through the company after death.

How does a shareholders’ agreement affect what happens after death?

A shareholders’ agreement can be just as important as the constitution, particularly in a private company with multiple owners.

Common death-related clauses include:

• Compulsory transfer provisions require the estate to sell the shares.
• Buy-sell clauses allow or require the remaining shareholders to acquire the deceased shareholder’s interest.
• Pre-emption rights require shares to be offered to existing shareholders before an external sale.
• Valuation mechanisms may include a fixed formula, an agreed valuation, an independent expert determination, or an accountant’s valuation.
• Insurance-funded buy-outs allow life insurance proceeds to fund the purchase of the deceased shareholder’s shares.
• Deed of accession requirements require the incoming beneficiary or purchaser to agree to become bound by the shareholders’ agreement.
• Restrictions on beneficiaries becoming shareholders, particularly where remaining owners do not want family members or unrelated beneficiaries involved in the business.

A shareholders’ agreement doesn’t necessarily override every aspect of succession law, but it heavily influences shareholder death company obligations and binding procedures.

Additionally, various documents may impact the process further:

Document	What it can affect after death
Will	Who benefits from the deceased’s estate
Company constitution	How shares are transmitted or transferred
Shareholders agreement	Buy-out, pre-emption, valuation and transfer rules
Trust deed	Control and succession of trust roles and trust assets

What happens if the deceased shareholder was also the sole director?

If the deceased was the company’s sole director, the company may have no one with authority to manage its business. In this case, the company may need to appoint an executor or administrator following this practical sequence:

Sole director/shareholder dies → executor or administrator steps in → new director appointed → company can continue operating → shares later transferred or distributed

Once a director is in place, the company can continue operating while the estate administration progresses when a sole shareholder dies.

What happens if shares are jointly owned?

Joint ownership can change the outcome.

How shares are held	Usual position after death
Solely held shares	Generally, they form part of the deceased estate and are dealt with by the legal personal representative.
Jointly held shares	The surviving joint holder may be recognised as entitled to the deceased holder’s interest, subject to the company’s records and governing documents.

What happens if there is no will?

If a shareholder dies without a valid will, the shares still form part of their estate. To manage it, an administrator is generally appointed and may need letters of administration before administering the estate.

After this, the people entitled to benefit from the estate are determined under the intestacy rules of the relevant state or territory. The company’s constitution and shareholders’ agreement still need to be followed.

Finally, the company law transmission or transfer process must still occur before a new shareholder is recorded in the register.

Can the executor sell the shares instead of transferring them to a beneficiary?

Yes, in some circumstances. The executor or administrator may not be required to transfer the shares directly to a beneficiary.

Depending on the will, estate obligations, and company documents, the estate may:

• Transfer shares to the beneficiary directly.
• Sell the shares to an existing shareholder.
• Sell the shares to a third party, subject to any restrictions.
• Comply with a compulsory buy-out mechanism.
• Retain the shares temporarily while the estate is administered.

The executor or administrator must consider their duties to the estate as a whole. They should also check whether the constitution or shareholders’ agreement requires the estate to first offer the shares to other shareholders, submit to a valuation process, or accept an insurance-funded buy-out.

What if the shares are held through a family trust?

A family trust can create a critical distinction between owning shares and controlling the structure that holds them.

The deceased personally owned the company shares

If the deceased personally owned the shares, they will usually form part of the deceased’s estate. The executor or administrator may deal with them under the will or intestacy rules, subject to the company constitution and shareholders’ agreement.

The trust owns the shares

If a trustee holds the shares for a family or discretionary trust, the deceased individual may not personally own those shares at all.

In that case:

• The trustee is generally the legal shareholder recorded in the company’s register.
• The trust beneficiaries may have rights under the trust deed, but they don’t necessarily own the trust assets directly.
• The trust deed governs the trust structure, including the roles and powers that influence control.
• Succession planning may need to address the trustee, directors of a corporate trustee, appointor powers, and the ownership of shares in the corporate trustee.

What is an event of default in a shareholders’ agreement?

Death is not the only event a shareholders’ agreement anticipates. Many agreements also include an event of default (sometimes called a default event or compulsory transfer event) that sets out what happens when a shareholder does something, or something happens to them, that the other shareholders have agreed should trigger a change to their rights or an exit from the company.

Death is often treated as one of these trigger events, sitting alongside a broader list.

Common events of default include:

• Insolvency or bankruptcy – a shareholder becoming bankrupt, entering external administration, or having a receiver, liquidator or controller appointed.
• Material or persistent breach – a serious breach of the shareholders’ agreement that is not remedied within a set period after notice.
• Fraud, dishonesty or serious misconduct – conduct that damages the company or breaches the shareholder’s duties to it.
• Loss of capacity – a shareholder losing the legal capacity to manage their own affairs.
• Ceasing employment or engagement – where a shareholder is also a founder or employee, leaving the business can be a trigger. These are often framed as good leaver or bad leaver provisions.
• Unauthorised dealings with shares – transferring, mortgaging or otherwise encumbering shares in breach of the agreement.
• Change of control – where a corporate shareholder is itself taken over by a third party.
• Death – which many agreements treat as a default or transfer event alongside the death-specific provisions.

Once an event of default occurs, the agreement usually sets out the consequences. These commonly include:

• Deemed transfer notice – the defaulting shareholder is treated as having offered their shares for sale.
• Compulsory sale to remaining shareholders – often through pre-emption, so the other shareholders can acquire the interest before any outside sale.
• Valuation at a default price – fair value for neutral events, and sometimes a discount for bad leaver events such as fraud or serious breach.
• Suspension of rights – voting rights, dividend entitlements and information rights may be suspended while the default continues.
• Loss of board representation – any right to appoint or retain a director may fall away.

Because death is frequently one of several trigger events, the event of default provisions and the death provisions usually operate together. It is worth reviewing both, because the valuation mechanism, the pre-emption process and any funding (such as buy-sell or key-person insurance) can differ depending on which trigger applies. In particular, check whether death is treated as a good leaver event, so the estate receives fair value rather than a discounted price.

Does leaving shares in a will transfer control of a family trust?

Not necessarily. This is particularly important if a family trust has a corporate trustee.

A person may own shares in the corporate trustee, but transferring those shares under their will doesn’t automatically resolve who controls the trust.

Control may depend on several separate elements:

• The succession of the appointor role
• Who has the power to remove and replace the trustee
• Who becomes the director of the corporate trustee
• Who inherits shares in the corporate trustee
• The voting rights attached to those trustee-company shares
• What the trust deed says happens when an appointor dies

For example, a will may leave all shares in the corporate trustee to Child A, while the trust deed provides that the appointor role passes to Child B. Child B may still have the power to remove and replace the corporate trustee. In practical terms, Child A may own the corporate trustee shares, while Child B holds a powerful role in trust control.

This is why estate planning for a family business should not focus only on the will. The will, trust deed, corporate trustee constitution, directorship arrangements, and appointor succession should be reviewed together.

What happens to the appointor role when someone dies?

The appointor is commonly a trust-control role, often with power to appoint, remove, or replace the trustee.

Some deeds nominate a successor appointor. Others may allow a personal representative, guardian, surviving appointor, or another nominated person to take over.

Since some deeds are unclear or outdated, this can create serious succession problems.

What if the deceased owned shares in the corporate trustee?

If the deceased owned shares in the company acting as trustee of a family trust, it’s critical to review the entire control structure, not merely the deceased’s will.

Key questions include:

• Who inherits the shares in the corporate trustee?
• Who becomes the director of the corporate trustee?
• Who controls voting rights in the trustee company?
• Who holds the appointor power?
• Does the trust deed specify a successor appointor?
• Do the succession arrangements align, or do they divide control between different people?

Owning shares in the corporate trustee can influence control, particularly if those shares carry voting rights. However, the trust deed and appointor succession remain critical.

A person who can remove and replace the trustee may have substantial practical influence even if they do not own the trustee company shares.

Do inherited shares give the beneficiary control of the company?

Not automatically. Becoming a shareholder and managing a company are different things.

Shareholders generally own the company’s shares and may have rights to:

• Vote at shareholder meetings
• Receive dividends if declared
• Appoint or remove directors in accordance with the constitution and applicable law
• Approve certain major company decisions

Directors manage the company’s business and affairs. A beneficiary who inherits shares doesn’t necessarily become a director, gain day-to-day management authority, or control the company.

Whether inherited shares provide practical control depends on matters such as:

• The percentage of shares inherited
• Whether the shares carry voting rights
• Whether the beneficiary has a majority or minority interest
• The rules for appointing and removing directors
• Any shareholders’ agreement restrictions
• Whether another person holds a controlling voting interest or special rights

For instance, inheriting 25% of ordinary shares in a company may give the beneficiary voting and economic rights, but not the ability to appoint a director alone or control business decisions.

What tax issues can arise when shares are inherited or sold?

Tax considerations for inherited shares can be complex. Key tax elements to consider include:

• Cost-based documentation: Maintaining precise records is essential because the beneficiary generally “steps into the shoes” of the deceased with respect to the asset’s cost base.
• Date-of-death valuations: Obtaining a formal valuation as at the date of death is often required to establish the cost base for specific assets or for reporting purposes.
• Capital Gains Tax (CGT): While death itself may not trigger a CGT event, the eventual sale of inherited shares by a beneficiary typically results in a CGT liability.
• Pre-CGT and trust complexities: Assets acquired before 20 September 1985 (pre-CGT) are subject to different rules, often using the market value at death as the starting cost base. Complex trust holdings further complicate these calculations.

You may wish to contact a tax professional if you’re unsure about the tax treatment of inherited shares.

What should a company do after being notified that a shareholder has died?

A company should respond methodically and avoid registering a transfer solely based on an informal request from a family member or beneficiary.

Use this practical checklist:

• Obtain evidence of death.
• Identify the executor or administrator.
• Review the company constitution.
• Review the shareholders’ agreement.
• Check whether the shares are solely or jointly held.
• Confirm whether the deceased was also a director.
• Recognise the legal personal representative where appropriate.
• Follow the applicable transmission or transfer process.
• Apply any pre-emption or buy-out provisions.
• Update the members’ register and share records.
• Complete relevant ASIC notifications where required.
• Check whether a trust structure affects ownership or control.

If the deceased was the sole director and shareholder, you may need to appoint a replacement director under the applicable Corporations Act pathway to ensure the company can continue operating.

What should shareholders put in place before someone dies?

The best time to address a shareholder’s death is before it happens. Shareholders should consider putting in place:

• A current will that specifically addresses business and company interests
• A shareholders’ agreement with clear death, transfer, and buy-out provisions
• A workable share valuation mechanism
• A current company constitution that aligns with the shareholders’ agreement
• Buy-sell insurance or key-person insurance, where appropriate
• Sole-director succession planning
• A review of trust deeds for family trusts
• Clear appointor succession provisions
• A plan for the succession of corporate trustee ownership and directorships
• Records showing share ownership, share certificates, cost bases and business valuations

Need help with succession planning? Contact Lawpath for legal advice today to ensure all your company documents are in order.

Sources:

• https://www.legislation.gov.au/C2004A00818/latest