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Succession of company shares of a deceased shareholder

According to the Bulgarian legislation the relations between the shareholders are settled according to the Articles of Associations that were signed by the shareholders upon registration of the company, as cases that are not described at the Articles of association are regulated by the Bulgarian legislation, but namely by the Commercial Law.

The lack of the specific text specifying the relations between the company, the living shareholder and the heirs of the deceased shareholder in the Articles of association of the company means that those relations will be settled according to the Bulgarian legislation, but namely: by the Commercial Law.

According to the art. 125, para. 1, p. 1 of the Commercial Law: The participation of a partner in a company is terminated at his death.

It means that since shareholder has died his participation in the company is terminated.

According to the art. 125, para. 3 of the Commercial Law: The property consequences from termination of a shareholder’s participation are settled on the ground of the balance sheet prepared at the end of the month during which the termination took place.

It means that the property relations should be settled according to the balance sheet prepared by the month of death of the deceased. The balance sheet represents the cost of all the assets and liabilities of the company and the result between the assets and the liabilities. In case of a legal dispute the Court appoints an expert who can make calculations and prepare a correct balance sheet. The legislator defines that the assets used for calculation of cost of the share of the deceased shareholder should be valuated according to their balance sheet value and not according to the fair market prices. 

Everything said above means that:

1. The heirs of the deceased shareholder DO not inherit his right of participation in the company but only the property right of the legator, i.e. since inheritance of the participation is not provided by the company’s Articles of association the heirs of the deceased shareholder have the right to the receive the monetary equivalent of his company’s share from the company, as the cost of this share should be calculated on the ground of the balance sheet prepared by the end of the month in which the death occurred.
2. And in case other shareholders will take a decision to accept the heirs of the deceased partners as new shareholders (art. 137, para. 1, p. 2 of the Commercial Law) and in case of fulfilment of the procedure under art. 122 of the Commercial Law /providing of a special request from the new shareholder/ only then it will be possible the heirs to acquire the right of participation, as company’s shares left by the legator will be acquired by the new shareholders.

3. There is a consistent court practice including such of the Supreme Court according to which:

It is untenable to claim and to believe that the heirs of the deceased shareholder acquire the right to participate in the company by inheritance. It is not only that accession of the participation rights via inheritance is not provided by the law, it is quite the reverse. The right of the legator to participate in the company appeared via acquiring of shares and acceptance that depended on his personality. Since Articles of association of the company does not contain any reverse agreement, the law does not intend that trust of other shareholders extends to the personalities of those heirs of the deceased shareholder who were not shareholders to the date of his death. 

Possibilities

Option No 1. The heir of the deceased to be accepted as the shareholder instead of the deceased.

Registration of the heir as the shareholder in the company can be made only if the other shareholder agrees to that.

Option No 2. Voluntary payment of the cost of the share of deceased shareholder by the other shareholder/s to the heir and transformation of the company to the company with sole owner.

Option No 3. In case the shareholder does not agree to option No 1 and option No 2, then the heir of the deceased shareholder has the right to start a court case against the company and to require payment of the monetary equivalent of the company’s share of the decease calculated on the ground of the balance sheet prepared by the end of the month in which the death occurred. We will additionally discuss ways of proving of who the only heirs of the deceased are. The case will be initiated against the company according to the company’s address. If you will choose the option with the court case, we will have to define the amount of your claim, and as it was explained above the amount due is % of the balance sheet value of the assets and liabilities calculated by the end of the month in which the death occurred and not of the fair market prices. We should also order an additional audit of the annual financial reports /that should be published at the Commercial Register/ in order to confirm the correct balance sheet value of the assets and liabilities of the company by the end of the month in which the death occurred.

The present article does not represent a legal advice but a general theoretical essay on a specific legal issue. ID Law office is not liable in case of a misunderstanding of the information provided in this article. 

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