What are the rights of surviving family member in a company?

Tuesday February 11 2020

An employee arranges processed juice from a

An employee arranges processed juice from a production unit. When a shareholder dies, the right to his interest in the shares will pass to whoever inherits them under his Will. PHOTO BY ERONIE KAMUKAMA 

By Racheal Nabisubi

When a family loses a beloved one, especially the bread winner, the question of inheritance and companies and whether Wills can help clear controversies is a question many families battle with. Whereas others assume that they are ‘to emerge as ‘directors’ of the company, the question of finances within the company is a battle one cannot win unless they understand the rights of a surviving member of the family. Recently, Bridget Nambooze, a Corporate and Commercial lawyer with Katende, Ssempebwa and Company Advocates shared her views on NTVThe Link about the rights of a family to a company or business in case the head of a family who was a shareholder in that business dies and the extent to which the Will, will work.

If a father or uncle owned a company with other people and he dies, can the children automatically take over his part?

If your father died with a Will, the will clearly states who is entitled to the shares in the company. There are also two things; the directorship and shares.

In Uganda, most people are directors and shareholders; it is the same thing. But under the laws, it means different things.

For example, Bridget Nambooze is an employee of Katende, Sempebwa. It is my job. So when I die, my children or husband are not entitled to inherit my job. Directors in the company are employees. You are appointed to it because of your capabilities.

So if your father was a director of the company, that position of directorship cannot be passed on under Will. So, it is not automatic that you will be a director in your father’s company or your late husband’s company.

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However, a share is property. If your father was a shareholder in a company, then that is an asset; he can leave it with whoever he chooses under a Will. That asset can be left to the children, wife, sister or brother. When that happens if you have a Will, it is noT automatic that you just walk into the company and tell them that you father has died; please give me his shares.

You have to go through a process. When your father passes on, you get the Will, go to the High court – Family Division and apply for something called the ‘Letter of Probate’.

We are used to the tablet of Letters of Administration because a number of people die without Wills. Under the ‘Letters of Probate’ you do not have to go through the Administrator General because there is a Will- the person has made it clear that this is the person. It is nothing for the Administrator General to arbitrate over.

It is recommendable to make a Will to make the lives of the beneficiaries easier. If the person does not leave the Will, then you have to go the Administrator General who determines who is entitled to this estate and who is going to be its administrator.

By law, the Administrator General is automatically appointed over the estate of a person who has not left a Will. Then you get a Letter of No Objection for him to allow you to administer that estate; that is when you go to the High Court.

When you get the probate or Letters of Administration, you take those to the company which will use the process of transmission from the shares of the deceased to you. You will only be entitled to the portion your father was entitled to.

If you had other partners, let’s say shares were 100 and your father owned 50; that is the portion you will be entitled to but not the entire company.
If a company has been making money and my father dies, do I have rights to claim for some money?

My father as a shareholder in that company is entitled to dividends - the profits the company has made after paying all liabilities of the company and taxes. This is also not so automatic because if they make the profits, they can decide to re-invest back into the company. Let’s say you are a trading company, you buy clothes and you resale; you can decide that the profits you have made are going to be recouped back into the business so that it grows.
Just because we have made profits does not mean that you are entitled to that money. Although the business seems to be earning a lot of revenue, you cannot touch it. That is why it sometimes becomes complex.

But that is how the law has structured companies that ownership and management are different. As an owner, you wait for profits; they tell you we have made profits and this is your portion of profits or if they decide to re-invest the money, then it is the management’s decision.

Imagine a company without shareholders and my father or uncle was the sole owner, how does that change? Does the Will change?
What you are describing is called sole proprietorship. With a sole proprietorship unlike a company, it does not have legal existence which is different from the owner. If you have sole proprietorship, you die with the business.

For example, if I have my shop or a stall in Kikuubo - a business trading centre in Kampala, if I die, the business dies with me. The only things that are left are the assets or stock such as tomatoes, books which I was selling. But it is subject to liabilities because I might have been given stock but I have not yet paid for it.

First, we clear the creditors and whatever is left; thereafter is what is distributed to whoever the Will has delegated.

Today, some businesses have advanced. You will find business, ‘Samuel & Sons’ trading as ‘Laisi enterprise’. That means that ‘Samuel & Sons’ or the proprietor of the business has registered that business name at Uganda Registration Service Bureau (URSB).

If you register that business name, it is also an asset which is not tangible; but it is called goodwill. If you register that goodwill, you can pass it on to any of your children, wife or relative.
How does a Will work in the case of a business which is not registered?
For a business which is not registered at all, it would work as a sole proprietorship. The difference is that where the business is not registered, there is no protection.

What is the value of the Will?
It mentions who is entitled to shares. But if that Will would go further and state in the event of disputes between the shareholders of the company, may be it could be agreed upon by the founders of this company and the partners that in case I die and my family is not able to fit in within our business model, maybe we appoint a valuer who can value the shares and you pay my estate the value of my contribution.

That would work in two ways; you include it in the memorandum; the Articles of Association which governs the relationship between shareholders and agree with partners during your life time to know that this is how the shares will be dealt with upon my demise.
To avoid cases of people turning their backs against you, write everything down.
Why is it crucial to make a Will?
For the ease of administering your estate and avoiding disputes. It also reduces the expenses of getting the Letter of Probate and Administration to allow your family to move on when you pass on.

What happens after shareholder’s death?
You have to go through a process. When your father passes on, you get to the Will, go to the High court – Family Division and apply for something called the ‘Letter of Probate’.

We are used to the tablet of Letters of Administration because a number of people die without Wills. Under the ‘Letters of Probate’ you do not have to go through the Administrator General because there is a Will- the person has made it clear that this is the person. It is nothing for the Administrator General to arbitrate over.

If the person does not leave the Will, then you have to go the Administrator General who determines who is entitled to this estate and who is going to be its administrator.

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