An offer from the Directors of the corporation has been accepted by the executors of the shareholder’s estate for the corporation to purchase the deceased shareholders corporate ccpc shares at FMV on date of death. The business had low income, so FMV is quite small. Deceased shareholder held 1/3 of the class A common shares.
What is the process to cancel the shares? The back of the share certificate states:
“FOR VALUE RECEIVED _______ hereby sell, assign and transfer unto ____________ shares of the Capital Stock represented by the within certificate, and do hereby irrevocably constitute and appoint _____________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated __________, _____.”
Does this mean that only an Attorney at Law can process the sale of shares and appropriately transfer them back to the corporation and make the appropriate updates in the Corporate Registry?
Along with the Provincial Companies Office and CRA being updated, along with the financial institution, do any other registries need to be notified of the transfer? There is no GST account. And what happens with the old share certificate? I’m assuming it just stays in the Corporate Registry as a cancelled certificate?
I have lots of other questions but will start with these basic ones.
If someone is willing to do a quick phone chat with me, that would also be helpful.
In Saskatchewan, the business owner or a shareholder can log into the provincial corporate registry (online) and file the necessary forms themselves, or phone and request paper forms to be filled and mailed back. But would the business owner know which forms need to be filed? And how to properly fill them out? Doubtful. Always best to hire a lawyer, particularly if it involves a deceased shareholder. Not to mention, there should be a legal agreement between the buyer and seller, clearly stating details of the sale - such an agreement is generally written and notarized by a lawyer.
Also, in your first paragraph it sounds like the other shareholders are purchasing the shares of the deceased shareholder. That is a completely different scenario than the corporation redeeming and cancelling the shares. In the latter case, you need to watch for a deemed dividend on redemption (ITA 84(3) I think?).
No, an officer of the corporation can be appointed to make the transfer and update the minute book. An attorney is simply someone who is appointed by another person to act for them in business or legal matters.
Who is your client? The estate, the corporation, or both of them?
If the directors or officers of the corporation do not feel comfortable preparing the necessary resolutions to authorize the share redemption, remove the deceased as an officer or director (if he held a position), update the corporate registers, file the required notices if the deceased was an officer or director then generally they engage the services of their corporate lawyer to perform these tasks.
If the shares are being transferred to other shareholders then there should be a share purchase agreement between those shareholders and the estate. In that respect there would be a disposition of shares and a capital gain or capital loss calculated. If the treasury is redeeming the shares then a legal document should also be drafted (other than simply signing the back of the share certificate) authorizing the redemption. As @Nezzer outlined, the deceased may have a capital gain or loss on death for the fair market value of the shares as they pass from the decedent to the estate. The estate will then a deemed dividend for the redemption proceeds. Subsection 164(6) may apply if there were taxable capital gains on the final T1 with regard to those shares and they were subsequently redeemed (Proceeds = NIL). If there was a surviving spouse or if the client qualified for CGE then that changes things.
In a perfect world the corporation might want to see a probated copy of the deceased’s will so they are certain of the deceased’s intent with regard to the shares.
The executor of the estate endorses the share certificate on the back, the certificate gets cancelled, and it would be a good idea to keep the cancelled certificate in the minute book.
Nicely done SPG! Accurate and concise.
Thank you, @Nezzer and @snoplowguy for your comments. These were very helpful and appreciated. A formal agreement has not been drafted yet. The original intention was for the corporation to buy back the shares. After more reflection with the client, a decision was made for the shareholders to purchase the shares from the estate, thus simplifying the entire process and removing the headaches created when the corporation buys back the shares. I think I’m clear now on what needs to be done, and am grateful for your input.