Safeguarding Shareholder Agreements: The Role of Professional Executors

The Risk Most Shareholder Agreements Don’t Address

Shareholder agreements are usually built around the things that can go wrong between shareholders while they are all alive: disputes, exits, valuations, deadlock between equal partners. What they less often address, in any practical depth, is what happens when one of the shareholders dies.

This is a gap with real consequences. A company does not pause for grief or paperwork. Suppliers still expect payment. Banks still expect signatures. Decisions still need to be made. When a director or major shareholder dies without their estate planning properly aligned to the company’s structure, the result can be a period of paralysis at exactly the moment the business can least afford it.

This article looks at what actually happens to a deceased shareholder’s shares under South African law, where the friction points typically arise, and why working with professional executor and deceased estate services gives remaining shareholders a far better outcome than leaving the matter to chance.

What Happens to Shares When a Shareholder Dies

Shares do not vanish on death, and they do not automatically pass to the remaining shareholders. A shareholder’s shares form part of their deceased estate, to be dealt with according to the Administration of Estates Act 66 of 1965, alongside the deceased’s will (governed by the Wills Act 7 of 1953) or, where there is no valid will, the rules of intestate succession under the Intestate Succession Act 81 of 1987.

Before anything can happen to those shares, an executor must be appointed. Where the deceased left a valid will nominating an executor, the Master of the High Court issues letters of executorship to that person. Where there is no valid will, the Master appoints an executor according to the statutory process. Only once letters of executorship have been issued does the executor have the legal authority to deal with the shares as part of the estate.

This appointment process is not instantaneous. It routinely takes weeks, and in more complex estates, considerably longer. During that period, the executor has no authority to act, and the deceased’s shares sit in a kind of legal limbo: still technically part of the estate, not yet under anyone’s active control.

Where Companies Run Into Trouble

The practical risks tend to surface in a small number of recurring scenarios.

No provision in the shareholder agreement. If the shareholder agreement is silent on what happens when a shareholder dies, the default position applies: the shares simply form part of the deceased estate, to be distributed to whoever is entitled to them under the will or intestate succession rules. The remaining shareholders may find themselves with a new co-shareholder they did not choose, who has no relationship with the business, no understanding of its operations, and potentially conflicting interests with the heirs of other shareholders.

An executor unfamiliar with the company’s structure. An executor’s duty is to the estate and its beneficiaries, not to the company. Where the executor has no insight into how the business operates, decisions about voting the deceased’s shares, consenting to company resolutions, or negotiating a buyout can be slow, poorly informed, or made without regard for the practical needs of the business.

Sole shareholder and sole director risk. Where the deceased held sole shareholder and sole director status, the company can effectively become incapacitated. A company can only act through its directors, and if there is no surviving director with authority to appoint a replacement, the business may be unable to access its own bank accounts, pay salaries, or enter into contracts until an executor is formally appointed and the company’s governance is restored. This has been the subject of South African case law, where courts have made clear that a deceased estate cannot be administered, and a company cannot resume normal governance, until letters of executorship are properly issued.

Disputes between heirs and remaining shareholders. Where the Memorandum of Incorporation (MOI) and shareholder agreement do not clearly set out a mechanism for valuing and transferring the deceased’s shares, disagreements between heirs and remaining shareholders over price, process, or timing can escalate into costly disputes precisely when the company most needs stability.

Why the Shareholder Agreement Should Address Death Directly

A well-drafted shareholder agreement can resolve most of these risks before they ever arise, by setting out in advance what happens to a shareholder’s shares on death.

Common mechanisms include a buy-and-sell arrangement, under which the remaining shareholders (or the company itself, subject to the requirements of the Companies Act 71 of 2008) have the right, or the obligation, to purchase the deceased’s shares from the estate at a value determined by an agreed formula or valuation process. These arrangements are often supported by life insurance policies on each shareholder, structured so that the policy proceeds fund the buyout without placing financial strain on the surviving shareholders or the company.

Other agreements provide for a right of first refusal, giving remaining shareholders the option to acquire the shares before they can be offered or transferred to an outside party or to the deceased’s heirs.

What matters most is that the mechanism is decided in advance, while all shareholders are alive and able to negotiate calmly, rather than reconstructed under pressure after a death, when emotions, urgency, and competing interests make agreement far harder to reach.

Why the Memorandum of Incorporation Also Matters

The shareholder agreement does not operate in isolation. The company’s Memorandum of Incorporation governs matters such as how directors are appointed and replaced, and what restrictions apply to the transfer of shares. Where a sole director is also the sole shareholder, the MOI should specifically provide for who has the authority to appoint a replacement director in the event of death, so the company is not left without anyone able to act on its behalf.

Reviewing the MOI alongside the shareholder agreement, as part of broader estate planning, closes a gap that catches many otherwise well-run companies off guard.

The Executor’s Role and Why Expertise Matters

Once letters of executorship are granted, the executor steps into a position of real influence over the company’s future. The executor must account for the deceased’s shares as estate assets, act in the interests of the estate’s beneficiaries, and deal with the shares in accordance with the shareholder agreement, the MOI, and the deceased’s will or the rules of intestate succession.

An executor with genuine commercial and corporate experience approaches this very differently from one without it. A professional executor familiar with shareholder agreements, company valuations, and the practical realities of running a business understands how to engage constructively with the remaining shareholders, how to interpret buy-and-sell provisions correctly, and how to keep the transition moving without unnecessary delay.

This is particularly valuable where the deceased was actively involved in management, where the company’s value depends on relationships and institutional knowledge that an inexperienced executor would have no way of assessing, or where the remaining shareholders need a counterpart who understands the commercial stakes well enough to negotiate efficiently and fairly.

Bringing the Will, the Agreement, and the Company Into Alignment

The strongest position any company can be in is one where the will, the shareholder agreement, and the company’s founding documents have all been reviewed together, with each one accounting for what the others require. A will that names an executor with no business background, paired with a shareholder agreement silent on death, leaves a company exposed regardless of how carefully the underlying business is run.

Getting this right is not a single document exercise. It requires coordinated planning between the company’s legal advisers, the shareholders individually, and, where appropriate, the professionals nominated to act as executors.

Protect Your Company Before the Question Becomes Urgent

The death of a director or major shareholder is one of the few events that can genuinely threaten a company’s stability overnight. The companies that weather it well are, almost without exception, the ones that planned for it in advance.

OAK Law provides professional executor and deceased estate services with specific experience in corporate structures, shareholder agreements, and business asset administration, helping ensure that estate transitions are handled in a way that protects the company, its shareholders, and the people the deceased shareholder leaves behind.

To find out about our deceased estate services for shareholders, kontak OAK Law to review your shareholder agreement and estate planning together.

Sources: Companies Act 71 of 2008; Administration of Estates Act 66 of 1965; Wills Act 7 of 1953; Intestate Succession Act 81 of 1987; Close Corporations Act 69 of 1984.