Inheriting a business and capital: avoiding asset paralysis

The problem of asset paralysis. Without arrangements made in advance, after the death of the owner of a business stake the management of the company can be effectively blocked for months, until the inheritance procedure is complete.

Tools for advance protection. A corporate agreement with provisions for the death of a participant, a will with a clear allocation of stakes, and, for international structures, a mechanism for transferring control that is coordinated between jurisdictions.

When to do it. While all parties are on calm terms and able to agree. In a crisis, or after the owner’s death, room for manoeuvre narrows sharply.

The right to a stake and the right to sign are not the same thing. Even if the notary promptly sets up trust management of the estate, this gives the manager the right to take part in general meetings and receive corporate information, but does not replace the powers of the sole executive body where the deceased owner was also the company’s director. Until a new director is elected, the bank will not reissue the signature card. Payments, staff salaries and the company’s current contracts are therefore in question simply because there is nobody in a position to sign.

An electronic signature is not inherited. The manager’s qualified electronic signature is tied to them personally and ceases to be valid on death. Reporting, trading on electronic platforms and some banking operations stop until a new signature is issued in the new director’s name, which is a separate procedure that itself requires corporate decisions to have been taken already.

What removes part of the paralysis in advance. A power of attorney to an employee with signing authority in case of the director’s prolonged absence, a simplified procedure in the articles for electing an interim manager, and access for key employees to the company’s operating systems independent of the owner’s personal accounts. These measures work before the probate file is opened and do not depend on its timing.

Covenants in loan agreements. Loan and bond agreements often give the bank the right to demand early repayment on a change of the borrower’s controlling person. The death of the principal beneficiary formally falls within this condition, even if the business continues to operate normally under the heirs or a trustee.

Terms in shareholder and option agreements. In agreements concluded when bringing in an investor or partner, the death of a controlling participant is often addressed separately, with the other parties entitled to buy out the stake under a pre-agreed formula. At signing, such a term looks like a formality; at the moment of death it becomes the main reference point for valuing the whole business.

Leases, franchises, key suppliers. Commercial property leases, franchise agreements and contracts with key suppliers sometimes give the counterparty a right of unilateral termination on a change of control over the tenant or franchisee. It is wording that rarely gets attention at signing and bears directly on the continuity of operations after the owner’s death.

An audit at the planning stage. We review the company’s portfolio of key contracts for such terms before they are triggered and, where possible, renegotiate the change-of-control wording with counterparties in advance.