Corporations and the Allocation of Shares to Third Parties

Por: Maria Isabel Pelaez

It is increasingly common for shareholders of a company to be concerned about the possibility of becoming associated, due to family processes such as inheritance or marital dissolutions, with individuals who did not originally enter into the partnership agreement and who may not share the same objectives.

This concern can be alleviated through statutory provisions allowing existing shareholders to maintain their status without third parties joining, avoiding conflicts with Colombian inheritance laws, which are mandatory public order regulations.

The Superintendence of Companies has been clear in its position regarding the strict application of the succession regime as a matter of public order. This entity states that:

“It is not possible, consequently, to circumvent the succession process under the pretense of a statutory provision transferring the ownership of the shares of the SAS to another shareholder upon the death of its holder.” (Official Letter 220-000051 of January 2, 2020)

The justification given by the Superintendence of Companies is straightforward: such a procedure prevents the shares from becoming part of the inheritance estate to be distributed and instead transfers them directly to a designated person.

A different case would be if, upon the death of the shareholder, their heirs received the shares due to the inheritance. Once within the company, statutory provisions regulating the company could impose an obligation for the heirs to transfer the shares to the other shareholders.

In this regard, it is important to consider the Superintendence of Companies’ stance on the matter, summarized as follows:

“(…) the law clearly enshrines inheritance rights, which essentially seek to ensure the rightful transfer of a primarily patrimonial right to a specific person, which must be guaranteed and protected.
Once the deceased person has passed, their assets and rights transfer to their heirs and legatees, based on kinship, blood relation, marriage, affinity, or civil relationship. Therefore, after the relevant inheritance process is completed, the heir(s) may negotiate with a third party to assign their inheritance rights. This right applies to what the deceased owned during their lifetime.
(…) One thing is the patrimonial right, in this case held by an heir of a shareholder, and another is for the heir holding that right to become part of the company in which the right is vested. This point is where the will of the company’s highest corporate body must come into play, as it determines whether the shareholders wish to continue with the heir(s) of the deceased shareholder.” (Official Letter 220-018257 of March 21, 2019)

Finally, it is essential to clarify that the legal mechanism allowing company shareholders to acquire the shares of a deceased shareholder, thus preventing the entry of their heirs, is not the right of first refusal. The Superintendence of Companies has made it clear in various pronouncements that the right of first refusal does not apply in cases of share transfer due to death, as the shareholder’s will is not at play in these matters. The Superintendence states:

“(…) Another relevant issue regarding the right of first refusal arises in share transactions when marital estates are liquidated, or shares are transferred due to death. In such cases, the shareholder’s will is not at play in the transfer, as in the case of inheritance, the owner has passed away, and their shares or social quotas, in accordance with the inheritance laws in the Civil Code, must be transferred to their heirs. The company and the other shareholders cannot oppose or demand compliance with the right of first refusal concerning this inheritance right.
The same applies to divorce, which can be forced or voluntary, but the liquidation of the marital estate, which can also be forced or voluntary, is not subject to the right of first refusal in terms of the final allocation of shares or social quotas.

Therefore, the criterion to be applied is the voluntary nature of the act in the transaction. If the transfer is voluntary, the right of first refusal must be respected as long as it is stipulated; however, if the transfer occurs by law, an exception rule applies, excluding the right of first refusal, as in the case of inheritance and marital estate liquidations (…)” (Official Letter 220-068604 of June 5, 2011)

In conclusion, there are legal mechanisms to enforce the exclusion of heirs from a company in which the deceased was a shareholder. However, careful attention must be given to the drafting of these provisions in the bylaws to ensure their validity at the time of execution.

CMC Abogados is an experienced firm in corporate law and advising clients with family-owned companies and estate planning. We would be pleased to support you throughout this process and provide you with the highest quality of legal services in this area.