The inheritance of shares often gives rise to challenges, particularly where the deceased shareholder leaves several heirs. The inherited shares may be of various types – certificated, book-entry (dematerialised), ordinary, preferential and others. Their distribution among the heirs according to their inheritance shares cannot be carried out mechanically.

All types of shares, regardless of their particular features – ordinary, preferential, certificated, book-entry, restricted (vinculated), etc. – may be inherited both by operation of law and by will.
Which persons are the heirs of the deceased shareholder and the size of their inheritance shares are determined in accordance with the Inheritance Act. When bequeathing shares, it is important to comply with the rules on the reserved portion of the testator’s children, parents or spouse. There are no restrictions on the inheritance of shares by foreign nationals.

Unlike the inheritance of company shares in an EOOD and an OOD, minor and under-age children may inherit shares and become shareholders in a joint-stock company.
A share is a security granting the shareholder various pecuniary and non-pecuniary rights, such as the right to a dividend, a liquidation share, a vote at the general meeting, the right to appeal against decisions, access to information and others.

Where the deceased shareholder has only one heir, that heir inherits all the shares and may exercise all the rights attached to them independently. Where there are several heirs, however, each share becomes co-owned, and the heirs receive an undivided portion of each share, in proportion to their inheritance share.

Undivided portions of shares
For example, if the deceased shareholder owned 100 shares and leaves two heirs, they will not each receive 50 shares, but rather a ½ undivided portion of each of those 100 shares. Each share will be co-owned by the two heirs.

This co-ownership often makes it difficult to exercise the rights attached to the shares, especially in the absence of agreement between the heirs. For example, in order to take part and vote at the general meeting, they must appoint a common representative, since they cannot vote separately with their undivided portions of the shares. Some rights, however, may be exercised individually by each heir, such as the right to information and the right to appeal against decisions of the company’s bodies.

Termination of co-ownership of shares
Co-ownership of shares may be terminated by a voluntary division agreement. This agreement specifies which shares pass into the individual ownership of each co-heir. There is nothing to prevent all the shares from being transferred to one of the heirs.

The procedure for exercising the rights attached to the shares depends on their type – certificated or book-entry.

Inheritance of certificated shares
In the case of the inheritance of certificated registered shares, the heirs must be entered in the book of shareholders of the joint-stock company.
To that end, they must notify the relevant body – the Board of Directors or the Management Board – of the shareholder’s death, presenting:

  • a certificate of heirs;
  • a voluntary division agreement for the shares (if one has been concluded);
  • the will and the notary’s record of its announcement.

Following the entry, the heirs are recorded as holders of the shares, and an allonge bearing their names is issued in respect of the deceased shareholder’s interim certificates.

Inheritance of book-entry shares
The inheritance of book-entry shares must be entered with the Central Depository.
The heirs turn to an investment intermediary acting as a registration agent, since they cannot submit the documents directly to the Central Depository. The documents required include:

  • a certificate of heirs (the original or a notarised copy);
  • a voluntary division agreement with notarial certification of the signatures (if available);
  • a notarised copy of a handwritten or notarial will, as well as a notary’s record for the announcement of the will;
  • a document certifying the financial instruments (e.g. a depository receipt).

Termination of co-ownership of book-entry shares
Co-ownership of book-entry shares may be terminated even without a voluntary division agreement. The Central Depository requires:

  • a court act establishing inheritance rights or another document on the basis of which the number of shares for each heir is determined.

The Central Depository then actually distributes the shares to individual client accounts, after which each heir becomes the sole owner of their portion.

If you need legal advice and protection of your inheritance rights, contact us on 0887550706 or by e-mail: [email protected]