I am holding shares in a private company. There are only two shareholders including me. Out of this, one shareholder died. Can I continue the working of the company? What is the effect a company on death of one of its members?
One of the benefits of the incorporation of the company is that of its perpetual succession. An incorporated company never dies until and unless it wounds up according to the law. The incorporated company is a separate legal entity, and therefore its position as a company would not change even by the death of any one of its member or if there is any change in the membership of the company. Professor L.C. B. Grover said that “Members may come and go but the company goes on forever,”. Company’s life is determined by its Memorandum of Association and not the longevity of its members. The company’s existence is perpetual and it will continue for the specified period mentioned in the Memorandum of Association to carry out its objects stated therein. As stated above, a perpetual succession means a company’s membership may vary from time to time and the changes in the membership would not affect the existence of the company. A company as a separate legal entity and distinct from those of its members as a result of incorporation and transferability of shares. The membership of the company changes due to transfer of the shares from one member to other person or his shares devolve on his legal heirs or representatives on his death or resignation or he ceases to be the member of the under provisions of the Act. Hence, perpetual succession of the company is its ability to remain existent by constant succession of new individuals who stepped into the shoes of those who cease to be members.
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On the death of the sole owner of the shares , the rights and liabilities on those shares devolve on the legal heirs of deceased owner. The legal heirs upon the death of sole owner of shares are entitled to be registered their names as holder of shares. The company is allowed to register the names of legal heirs of the deceased owner in its Register of Members only upon obtaining the approval from the legal heirs.
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Therefore, even though other shareholder of your company died, those shares are transferable and can be transmitted in the name of their legal heirs with their consent, or it can be transferred to some other people who preferred. You can run your private company when the shares are transferred to the persons concerned.
Adv. Anitha Gutti
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