Death can strike at any moment. And sadly, business has to go on as usual.
That's why you need to know what to do when a CC member dies without a member's agreement in place.
The following will happen when a member dies without a member's agreement in place:
The executor of a deceased estate has a duty to dispose of a member's interest and this duty must be exercised subject to the provisions of the association agreement.
The Practical Tax Loose Leaf Service says that in the absence of an association agreement, the executor of a deceased estate may only transfer the member's interest to an heir or legatee if he qualifies to become a member and if the remaining members have given their consent.
If the remaining members refuse to consent within the prescribed 28 days, the executor must sell the member's interest of the deceased member to the corporation, the remaining members or an outsider on the same terms as in the case of insolvency.
That's why it's better to have a watertight member's agreement in place. It'll help avoid an interest going to an outsider, who could potentially be your competitor.
The bottom line: 'It's essential that the members of a Close Corporation sign an association agreement preferably at the beginning of the relationship,' says Michalsons.