Information Centre · Probate & Deceased Estates
Private Company Shares in Deceased Estates
Private company shares raise a distinct set of issues on death: the personal representative's authority, the company's register of members, the constitution and any shareholders or buy-sell agreement, valuation, and the CGT treatment of inherited shares under Division 128. This guide summarises the framework at a high level; the outcome in any given estate depends on the documents and the facts.
Key points
- Whether private company shares form part of the estate depends on registered and beneficial ownership, the capacity in which the shares were held, and any enforceable arrangements affecting them.
- Transmission on death is the company's recognition of the personal representative by operation of law; a later transfer to a beneficiary or purchaser is a separate step and may engage constitutional or contractual restrictions.
- Section 1072A of the Corporations Act 2001 (Cth) is a replaceable rule and applies subject to the constitution under section 135 and to any enforceable agreements — its current text and the specific documents must be checked.
- For a proprietary company whose only member is also its only director, section 201F of the Corporations Act 2001 (Cth) enables the deceased member's personal representative to appoint a new director, subject to the section, ASIC's current guidance and proof of the personal representative's status.
- Valuation is purpose-, date- and fact-specific: the contractual price under a constitution or shareholders agreement may not govern the CGT cost base under Division 128 of the ITAA 1997.
- The rights of the personal representative to vote, receive information or sign resolutions before registration depend on the constitution, any shareholders agreement and applicable Corporations Act provisions.
Take the Inventory First
Before deciding how to deal with the shares, gather:
- the company's register of members and any share certificates;
- the exact registered and beneficial ownership of each parcel (sole, joint, tenants in common, as trustee);
- the share class and any special rights;
- the current constitution;
- any shareholders agreement, buy-sell agreement or side arrangements;
- the deceased's Will and grant status;
- related-party loans or security affecting the shares or the company;
- director positions held by the deceased and any officeholder changes required; and
- the deceased's tax acquisition history for the shares (pre-CGT or post-CGT and cost-base information).
The answers to most later questions depend on this inventory.
Estate Interest, Executor's Office and Company Recognition
Three concepts are often conflated and should be kept separate:
- the executor's office under the Will (which arises on the deceased's death, subject to acceptance);
- proof of authority by grant of probate or letters of administration (which is what third parties, including the company, generally rely on); and
- recognition by the company of the personal representative and, later, registration of a transferee as a member.
These are separate steps and the timing and evidence required for each are different.
Transmission and Later Transfer
Transmission is the company's recognition of the personal representative in respect of the shares by operation of law on death. A later transfer of the shares from the personal representative to a beneficiary or purchaser is a distinct step. Constitutional restrictions and enforceable pre-emptive, buy-sell or transfer provisions may apply to that later transfer depending on their terms.
Section 1072A of the Corporations Act 2001 (Cth) is a replaceable rule addressing the position of a personal representative in relation to a deceased member. It applies subject to displacement or modification by the constitution under section 135 and operates alongside any other applicable Corporations Act provisions and enforceable agreements. Its current text should be checked; it does not, by itself, override the constitution or a shareholders agreement.
Register of Members vs ASIC Records
The company's register of members is the primary record of who holds the shares. ASIC records (including those reflected in searches and notices under Chapter 2C) are a separate register maintained under the Corporations Act; they should not be treated as a substitute for the company's own register. There is no single standard ASIC transmission form that governs the company-level process.
Sole Director and Sole Member Companies (s 201F)
Section 201F of the Corporations Act 2001 (Cth) addresses a proprietary company whose only member is also its only director. If that person dies, the deceased member's personal representative (or the trustee of the deceased member's estate) may appoint a person as director of the company under section 201F. ASIC's current guidance recognises this pathway. The appointment must be recorded and notified in accordance with the section and the company's Corporations Act obligations; the personal representative's status (grant of probate or letters of administration) and the current text of section 201F should be checked in every case. The constitution does not displace section 201F unless its terms in fact do so. The company remains a separate legal person, and any operational authority outside the vacant board depends on the facts.
Voting, Information and Ongoing Governance
Whether the personal representative can vote, receive information, sign resolutions or otherwise act as a member before being registered depends on the constitution, any shareholders agreement, the applicable Corporations Act provisions and the evidence available to the company. The position varies between companies and cannot be assumed.
Company Buy-Backs, Redemptions and Buy-Sell Arrangements
A company-funded purchase, buy-back or redemption of the deceased's shares must comply with the relevant Corporations Act provisions and the constitution. A buy-sell agreement may provide a mechanism for the disposition of the deceased's shares, but its enforceability, funding arrangements (including any insurance) and interaction with the estate depend on its terms and the surrounding facts. Buy-sell arrangements do not by themselves guarantee liquidity, control or that insurance proceeds will flow to the intended party.
Valuation
Valuation is purpose-, date- and fact-specific. The purposes may include CGT cost base under Division 128 at date of death, valuation for estate administration purposes, and valuation for a transfer at a price set by or under a shareholders or buy-sell agreement. These values are conceptually distinct and may differ. A contractual price fixed between the parties does not necessarily govern the tax value. Whether a formal expert valuation is required, and how discounts or premiums apply, depends on the shareholding and the purpose. Numeric folklore about set discount or premium ranges should be treated with caution.
Division 128 and CGT on Inherited Shares
Division 128 of the Income Tax Assessment Act 1997 generally addresses the cost base and CGT treatment of assets that pass to a legal personal representative and then to a beneficiary. Cost-base outcomes depend on how and when the deceased acquired the asset, whether the asset passes in a way covered by section 128-20, statutory exceptions (including for non-resident and tax-exempt beneficiaries and certain assets), and the recipient's circumstances. Pre-CGT and post-CGT holdings, in-specie distributions, buy-backs, redemptions, liquidator's distributions, non-arm's length dealings and Division 7A / shareholder-loan issues each need to be considered on the facts. Current ATO inherited-asset guidance should be checked before steps are taken.
Dividends, Franking and Present Entitlement
The tax treatment of dividends declared after death, franking credits, present entitlement of the estate or a beneficiary, and the timing of income tax returns for the deceased and the estate depend on the terms of the dividend, when entitlement arises, current ATO filing tests and the estate's stage of administration.
Where Parties Disagree
Where shareholders, directors and beneficiaries disagree, the starting points are the constitution, any shareholders or buy-sell agreement, the register of members and the estate's authority. Members' remedies under Part 2F.1 of the Corporations Act (including sections 232 to 234) may be available in appropriate cases; standing, conduct and evidence matter, and relief and costs are discretionary. Litigation outcomes cannot be predicted in the abstract.
Related Guides
See company director and shareholder death, executor duties in Victoria and probate in Victoria.
Frequently Asked Questions
Are private company shares part of the deceased's estate?
Whether shares form part of the estate depends on registered and beneficial ownership, whether the shares were held jointly, in trust or in some other capacity, and any enforceable arrangements affecting them. Shares held in the deceased's sole name in their own beneficial capacity generally fall into the estate. Shares held as trustee, subject to a shareholders agreement or held jointly may be dealt with differently. Each holding needs to be checked against the register of members, the constitution and any related agreements.
What is 'transmission' on death and how does it differ from a later transfer?
Transmission is the process by which the company recognises the deceased's personal representative in respect of the shares by operation of law. A later transfer of the shares from the personal representative to a beneficiary or purchaser is a separate step and may engage constitutional restrictions and any enforceable pre-emptive, buy-sell or transfer provisions that apply to a transfer.
How does section 1072A of the Corporations Act apply?
Section 1072A of the Corporations Act 2001 (Cth) is a replaceable rule that addresses the position of the personal representative of a deceased member. It applies subject to displacement or modification by the company's constitution under section 135, and it operates alongside any other applicable Corporations Act provisions and any enforceable agreements. The current text of the section, the company's constitution and any shareholders or buy-sell agreement all need to be checked; section 1072A does not, by itself, override those documents.
What evidence does the company need before recognising the personal representative?
The company's register of members is central. What the company requires (including whether it will act on a grant, a certified copy or additional evidence) depends on the constitution and the company's own procedures. There is no single standard ASIC form for transmission; the process is dealt with at company level, subject to the Corporations Act. ASIC records of officeholders and shareholders should not be confused with the company's own register of members.
What if the deceased was the sole director and sole member of a proprietary company?
Section 201F of the Corporations Act 2001 (Cth) addresses proprietary companies whose only member is also its only director. If that person dies, the deceased member's personal representative (or the trustee of the deceased member's estate) may appoint a person as director of the company under section 201F, and ASIC's current guidance recognises that pathway. The appointment must be recorded and notified in accordance with the section and the company's obligations; the personal representative's status (grant of probate or letters of administration) and the current text of section 201F should be checked. The constitution does not displace section 201F unless its terms in fact do so. The company remains a separate legal person, and any operational authority outside the vacant board depends on the facts.
Can the executor vote, receive information or sign resolutions before being registered?
That depends on the constitution, any shareholders agreement, the applicable Corporations Act provisions and the evidence available to the company. Some rights may be exercisable by the personal representative on production of the grant and appropriate evidence; others may not be exercisable until the personal representative or a beneficiary is registered. The position is not uniform across companies and should not be assumed.
How are private company shares valued for the estate and for CGT?
Valuation is purpose-, date- and fact-specific. The value used for tax purposes on death is generally addressed under Division 128 of the Income Tax Assessment Act 1997 and the ATO's inherited-asset guidance. A price fixed by a constitution or shareholders agreement between the parties may govern the contractual price for a transfer between them but does not necessarily govern the tax cost base. Whether a formal expert valuation is required, and what discounts or premiums are appropriate, depends on the shareholding, purpose and facts. Numeric folklore about minority discounts or control premiums should be treated with caution.
How does Division 128 apply to a beneficiary who inherits shares?
Division 128 generally addresses the cost base and tax treatment of assets that pass to a legal personal representative and then to a beneficiary. Cost-base outcomes depend on how and when the deceased acquired the asset, whether it passes in a way covered by section 128-20, statutory exceptions (including exceptions for non-resident and tax-exempt beneficiaries and certain assets) and the recipient's circumstances. Pre-CGT and post-CGT holdings, in-specie distributions, buy-backs, redemptions and liquidator's distributions are fact-specific and should be considered separately.
Do buy-sell agreements guarantee a clean outcome on death?
A buy-sell agreement can help provide a mechanism for dealing with a deceased shareholder's shares, but its effect depends on the terms of the agreement, whether it is enforceable, how any insurance is structured and owned, and how it interacts with the constitution and the estate. A company-funded purchase or buy-back must comply with the Corporations Act. Buy-sell arrangements do not by themselves guarantee control, liquidity or that insurance proceeds will flow to the intended parties.
What if the surviving shareholders and beneficiaries cannot agree?
The starting point is the constitution, any shareholders or buy-sell agreement, the register of members and the estate's authority. Members' remedies under Part 2F.1 of the Corporations Act (including sections 232 to 234) may be available in appropriate cases; relief and costs under those provisions are discretionary and depend on standing, conduct and evidence. Outcomes cannot be predicted in the abstract.
How Parke Lawyers Can Help
Parke Lawyers advises personal representatives, beneficiaries and continuing shareholders on the transfer, valuation and buy-out of private-company shares in a deceased estate, and on the interaction with shareholder agreements and buy-sell arrangements, through our Wills & Estate Planning and Probate & Estate Administration teams. Speak with our team early — the treatment of company shares in the estate is much easier to resolve when the constitution and shareholder documents are analysed at the start.
Probate & Deceased Estates
Private company shares in a deceased estate.
Parke Lawyers advises personal representatives, surviving shareholders and beneficiaries on transmission, constitutional restrictions, shareholder disputes, valuation and the CGT treatment of inherited private company shares.
This article is general information only and does not constitute legal advice. Please obtain advice tailored to your circumstances.