Company Director Dies: What Happens to the Shares and the Company?

The death of a director-shareholder in a small private company creates challenges that are simultaneously legal, financial, and operational. Unlike a sole trader's business, the company continues — but significant questions arise about who controls the shares, who has signatory authority, and how the business continues to function. This guide explains the key considerations for surviving co-directors and executors.

Shares pass via the will or intestacy rules

Shares in a private limited company are assets of the deceased director's estate, like any other property. They pass according to the terms of the will — or, if there is no will, according to the intestacy rules. They do not automatically transfer to surviving directors or co-shareholders.

This is often a significant source of surprise for small business co-owners. It means that a surviving business partner may find themselves in a company with a deceased colleague's spouse, adult children, or other beneficiaries as fellow shareholders — people who may have no interest in or knowledge of the business.

From the executor's perspective, the shares are an asset that must be valued, declared for probate, and then either retained by the estate, distributed to beneficiaries, or sold — depending on the will's instructions and the commercial situation.

The Companies House record for the company will need to be updated to reflect the death of the director. File a Termination of appointment of director (form TM01) at Companies House as soon as practicable — this is a legal requirement and failure to do so is a filing offence.

The Articles of Association: pre-emption rights and restrictions

The company's Articles of Association (the constitutional document that governs how the company is run and how shares may be transferred) are critical. Most well-drafted articles for small private companies contain pre-emption rights on death — provisions that require shares to be offered to existing shareholders before they can be transferred to anyone else.

Typical pre-emption provisions on death work as follows:

• The shares must first be offered to surviving shareholders at a price determined by the articles (often a formula, or at a price to be agreed, or at a value determined by the company's auditors)
• Only if the surviving shareholders decline to buy the shares can the executor transfer them to a beneficiary or sell them externally
• Some articles go further with "compulsory transfer" provisions that require shares to be sold on death, preventing any transfer to beneficiaries who are not shareholders

If the company also has a Shareholders' Agreement (a private contract between the shareholders), this may contain additional provisions — including "put and call options" that give either the estate or surviving shareholders the right to buy or sell the shares at a specified price or formula. Always review both the articles and any shareholders' agreement before taking any action with the shares.

What happens to the directorship

A directorship is a personal appointment — it ends automatically on the director's death. Surviving directors continue in their roles without any formal action being needed, provided there are enough directors to constitute a quorum for board decisions under the articles.

If the deceased was the sole director, the situation is more complex. The executor has the power to appoint themselves or a nominee as a director to manage the company during the estate administration — but this requires a valid board resolution, which is difficult without a director in place. In this situation, legal advice is essential. A Court order may be required if there are no surviving directors and the articles do not make provision for this scenario.

Even where there are surviving directors, the executor may wish to be appointed as a director during the administration period to ensure they can exercise the deceased's rights as shareholder and manage any director-related issues (such as recovering a director's loan account). This can be done by a board resolution of the surviving directors.

Practical issues that arise immediately on the death of a director include: bank mandates that required the deceased's signature, contracts signed in the deceased's name personally (rather than as director), and any software or systems where the deceased had sole admin access. These should all be identified and addressed urgently to avoid disruption to the business.

Valuing private company shares for probate

Private company shares are not publicly traded and must be valued specifically for probate. The value must represent the price the shares would achieve on the open market as at the date of death, taking into account all relevant information available at that date.

Common approaches to valuing private company shares include:

• Earnings multiple: applying a multiple (e.g., 4x to 8x) to the company's maintainable earnings — appropriate for profitable trading businesses
• Net asset value: valuing the company based on the net book value of its assets — more appropriate for asset-holding companies or loss-making businesses
• Dividend yield basis: capitalising the dividend stream — more relevant where the company pays regular dividends

HMRC generally accepts a minority discount of 10%–35% for shareholdings below 50%, reflecting the fact that a minority shareholder cannot control the company or force a dividend. The precise discount depends on the specific shareholding and the company's constitution.

For any shareholding that is likely to be subject to inheritance tax, or where the value is significant, engaging a specialist business valuer (a chartered accountant or business transfer agent) is strongly recommended. HMRC's Share Valuation division will review the valuation if the estate is taxable, and a well-documented professional valuation is essential to support the figures submitted.

Practical impact on the company: bank mandates, contracts, and compliance

Beyond the share transfer and directorship questions, the company's day-to-day operations may be affected in several practical ways:

• Bank mandates: if the deceased was the sole or primary signatory on the company's bank account, the bank will need to be notified and the mandate updated before the account can be operated — this may temporarily freeze the company's banking
• Director's loan account: if the deceased had a director's loan account (money owed to the company by the director, or owed by the company to the director), this is either a liability or an asset of the estate that must be addressed
• HMRC compliance: the company's corporation tax and payroll obligations continue — surviving directors are responsible for ensuring these are met
• Personal guarantees: if the deceased had given personal guarantees for company borrowing, these guarantees survive death and become liabilities of the estate — check all company finance agreements for personal guarantee clauses

Companies in this situation benefit significantly from early legal advice — both a corporate solicitor (for the share and directorship issues) and a tax adviser (for the IHT and CGT implications). The complexity of these situations means that specialist guidance is rarely wasted.