Many corporate lawyers have faced with the following question in their work: whether the rights and obligations of an individual under a corporate agreement/option in respect of a participation interest/share (1) transfer to his or her heir in case of testator’s death and (2) to his/her spouse who has received the participation interest/share as a part of the division of jointly acquired property? The object of our research is rights and obligations under the contract, not those which are connected with the status of a participant/shareholder and regulated by law and the company's articles of association.
Unfortunately, today there is no definite answer to the these questions. In particular, we are not aware of any court practice that confirms or denies the possibility of transferring such rights and obligations to an heir/spouse. Doctrinal opinions vary on this matter.
As a consideration, it seems that the answer depends on whether such rights and obligations are of a property nature or of a personal nature, i.e. inseparably connected with the personality of an individual. Thus, if they are of a property nature, they should be included in the inheritance assets and passed to the heir, and if not, they should be ceased.
Another question is: where to draw the line of demarcation? Are the voting rights of a property nature? And what about the optionee's rights/obligations under the option? It seems that, as a general rule, they are of a property nature, but there may be other situations: for example, there are good reasons to believe that an a company employee's option to acquire shares under a performance-related incentive program is inextricably connected with the employee's personality and, by default, cannot be an object of inheritance.
In the case of options, the principle alienability of rights under them is confirmed, in particular, by Article 492.2(7) of the Russian Civil Code, according to which the rights under an option to conclude an agreement may be assigned to another person, unless otherwise provided by the agreement or arising from its substance. It seems that we can conclude at least the possibility of inheritance of option rights. In addition, in a private conversation with us, one of the notaries confirmed the inheritability of the option, but admitted that the issue remains unresolved in law and court practice.
Also we draw attention to the paragraph 14 of the Plenum's Resolution of the Russian Supreme Court from 29.05.2012 N 9 "On judicial practice in cases of inheritance", according to which the inheritance includes the property belonging to the testator on the date of opening the inheritance, in particular:
property rights (including rights arising from contracts concluded by the testator, unless otherwise provided by law or the contract);
property obligations.
That is, assuming the property nature of the rights and obligations under a corporate contract/option, their inheritance can at least be excluded by the contract itself.
Perhaps only one case is of interest from the court practice - see the decision of the Moscow Arbitration Court of 20 December 2021 in case No. A40-23294/20 117 122. Two individual shareholders entered into a shareholder agreement under which shareholder A could demand from shareholder B to sell his shares in case of full repayment of the company's current loan obligations. The shareholders' agreement also stipulated the obligation of shareholder B, in case of A's death, to enter into a similar shareholders' agreement with his heir, which would provide, that B's shares pass to A's heir, or a B's obligation to sell shares to A's heir. After the death of shareholder A, his heir required shareholder B to sell his shares. The court qualified the contract's provision on B's obligation to sell shares to A's heir in case of full repayment of the company's current loan obligations as a preliminary contract of sale and dismissed the claim due to the non-occurrence of the conditions for the conclusion of the main contract. The case is of interest because during its consideration the court did not deny (nor did it confirm directly) that the heir, in principle, has the right to demand selling of shares from shareholder B under the terms of the shareholders' agreement. Still it is not quite clear what are the grounds: the heir, having become a shareholder, inherited the rights and obligations arising from the shareholders' agreement, or simply because the shareholders' agreement provided rights for persons not participating in it.
With all this in mind, what should we do to increase the "survivability" of a corporate contract/option entered into with an individual? We can, for example, consider the following:
Explicitly specify in the agreement the transfer of rights and obligations to the heir/spouse, emphasizing their proprietary nature.
In the case of an LLC, articles of association should stipulate the requirement to obtain the consent of the other participants to the transfer of the share. The other participants will give such consent only if the heir/spouse joins the corporate agreement/option, and the obligation to give such consent can be stipulated in the corporate agreement itself. Of course, if consent is withheld, the heir/spouse gets the actual value of the share.
To make the potential heir/spouse of the natural person, who will take his/her place in case of death/division of property, the initial "sleeping" party to the contract.
In case of marriage require the individual to enter into a prenuptial agreement that recognizes the participant interest/shares as his sole property.
Finally, simply avoid direct ownership of the participant interest/shares by the individual himself by transferring them to the company of such individual. In such a case, even on the death of the individual/division of property, the share will remain in such company, which will still be bound by the terms of the corporate agreement/option.
