How to Transfer Shares After the Death of a Company Director

How to Transfer Shares After the Death of a Company Director : When a director of a private company dies, how will his shares be transferred, what will be the legal requirements and procedure, all these points will be discussed in this blog post today.

Status of shares in inheritance

The first step is to determine the inheritance of deceased person.

Just as the other property of a deceased person is distributed, similarly the shareholding in the company is also part of his inheritance.

Therefore, the Shareholding will also be distributed according to the share of each heir.

A person is not considered the owner of shares until the shares are formally transferred to his name.

This is just like a legal heir not the owner of the property until the said property is transferred to his name.

Under the same principle, a formal transfer of shares is necessary.

For this, it is necessary to file prescribed forms with SECP online portal.

Obtaining a Succession Certificate

The first step is to get Succession Certificate from NADRA.

This certificate will list the Shareholding of each person.

All the inheritance (bank, insurance policy, Equity stake, immovable property or any other asset) of the deceased person, will be distributed.

How to Apply

For Succession Certificate one of the legal heirs must physically visit the NADRA registration office along with all required documentation.

Eligibility:

Deceased and legal heirs must be Pakistani citizens.

Requirements:

1. Death Certificate of the deceased
   2. CNIC Cancellation Certificate issued by NADRA
   3. Family Registration Certificate (FRC)
   4. List of legal heirs with copies of CNICs
   5. Details of movable and immovable property
   6. Letter of Authorization/Affidavit attested by Oath Commissioner

How to Transfer Shares After the Death of a Company Director Share transfer process in SECP

After obtaining the inheritance certificate, the next step is to file this process in SECP and transfer the shares, because the shares will be transferred only when all the relevant SECP forms (Form 25) are filed.

In normal circumstances, when a living person transfers his ownership, there is an affidavit from him that he is transferring his shares to other persons.

But since here the person has died, the Death Certificate and inheritance certificate will be attached with it.

While filing the form, there will also be an affidavit from the current CEO of the company that the shares belonged to the deceased member are now being transferred to their legal heirs.

Approval process on SECP portal

The method of filing a form in SECP is that only the authorized officer of the company can file the form.

He will fill out all the data, but after completing the form, it is mandatory to get its approval from all the directors and members of the company before submitting it, because the option to submit is not visible and cannot be clicked on until all the members log in to their accounts and approve it.

How to Register with SECP-Leap

All persons in whose name’s shares will be transferred will have to create their own login ID with SECP.

This ID will be created only if they have a valid CNIC which is not expired, and a registered SIM in their name, because at the time of first registration, an OTP will be send from SECP on their email and SMS.

When the registration is complete, a PIN code is allotted to each member.

To approve the form, all the members will log in to their portal and approve it by applying the PIN code.

After get approved from all members that, the form will be ready for submission, and the authorized officer of the company will submit it.

If the heirs include minor children

Another very important issue is that what will happen if some of the heirs are minor children?

Because according to SECP rules, the person in whose name the shares will be transferred must be adult.

A minor cannot become the shareholder/member of the company.

How to Get Guardianship Certificate?

In such a case, the shareholding of minor children will be transferred to their guardian, and until the children become adults, their Shareholdings will remain in the guardian’s name.

When the children become adults, their shares can be transferred to their names.

The legal way to do this is to file a claim in the civil court and obtain a Guardian Certificate. Usually, the father or mother is the guardian.

After this, there shall be a meeting of the Board of Directors to be held, pass a resolution that all the Shareholdings of the minor children are being transferred to the guardian.

Appointment of Director After Share Transfer

After the transfer of shares of the company, the next step is the appointment of a director, which is mandatory according to the Companies Act 2017.

If a director dies, then the company will be required to fill this casual vacancy and a new director must be appointed within 90 days.

Legally, elections can be held only on the number of seats that have become vacant in a casual vacancy, the number of seats cannot be increased.

For example, if a director has died, only one new director can take his place.

Practical and legal issues in the case of new members/heirs

If the heirs of the deceased director are four persons and there is only one casual vacancy, then only one of them can become a director.

If it is necessary for all of them to become directors to run the affairs of the company?

When 70% of the shares are divided among four people, each member’s individual share becomes 17.5%. Only one director can be elected. If there is an initial 30% shareholding and one member’s 17.5% is added to it, the total shareholding becomes 47.5%

In such a situation, it will be difficult to manage the company affairs, as in many cases, the approval of the majority of the board of directors is required.

Three Year Election Period Limit

The regular elections can be held after every three years under the law.

For example, if the company election was held in 2025 and a director died in 2026, while the next election is to be held in 2028 then the only one director can be appointment through casual vacancy and if more directors are needed before that the question arises as to what will be the solution?

One legal way is to hold fresh elections, dissolve the existing board of directors and hold new elections, and then new directors can be brought in as needed.

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