Equity inheritance refers to the change of a company's shareholders due to the legal inheritance of equity.

Article 1122 of the Chinese Civil Code stipulates: "The estate refers to the lawful personal property left by a natural person at the time of their death. Estates that cannot be inherited according to legal provisions or their nature shall not be inherited." As equity is a right that combines both property and personal attributes, it can be transferred, sold, and inherited in terms of its property value.
Article 75 of the Chinese Company Law stipulates: "After the death of a natural person shareholder, their lawful heirs may inherit the shareholder's qualifications; however, this does not apply if the company's articles of association provide otherwise." This provides a direct legal basis for equity inheritance.
 

1. Can the qualification of a natural person shareholder be inherited after their death?

Since the establishment and changes of a company must strictly follow the principle of autonomy, whether the lawful heirs can inherit the shareholder qualifications after a shareholder's death depends on the company's articles of association.
The inheritance of shareholder equity must comply with both the Civil Code and the Company Law.

As stated in the Company Law, after a natural person shareholder's death, their lawful heirs can inherit the shareholder qualifications unless otherwise stipulated by the company's articles of association.

Thus, after a natural person shareholder's death, whether their lawful heirs can inherit the shareholder qualifications depends on the specific provisions of the company's articles of association.

For example, if the company's articles of association explicitly prohibit heirs from inheriting shareholder qualifications after a natural person shareholder's death, the heirs cannot become shareholders and can only inherit the financial rights enjoyed by the original shareholder in the company. Conversely, if the articles of association explicitly allow lawful heirs to inherit shareholder qualifications after the shareholder's death, the heirs can inherit these qualifications and become shareholders. Given the dual nature of companies as associations of people and capital, the agreements in the company's articles of association about the inheritability of equity are very important.

If the articles of association do not stipulate this, how should it be handled? According to the statutory principles, if the articles of association do not stipulate otherwise, the lawful heirs of the shareholder can inherit the shareholder qualifications.

2. Can shareholder qualifications be considered an estate?

Article 1122 of the Chinese Civil Code states: "The estate refers to the lawful personal property left by a natural person at the time of their death. Estates that cannot be inherited according to legal provisions or their nature shall not be inherited."
According to this legal provision, shareholder qualifications can be considered an estate.

3. Determining the lawful heirs of equity

According to the Chinese Civil Code, after the death of a natural person shareholder, the inheritance process begins. If there is a will, inheritance is handled according to the will or legacy. If there is an agreement for support, it is handled according to the agreement. Without a will or legacy support agreement, the first-order heirs inherit the equity proportionally.

Article 1127 of the Chinese Civil Code stipulates: "The estate is inherited in the following order: (1) First order: spouse, children, parents; (2) Second order: siblings, grandparents, maternal grandparents. The first-order heirs inherit first. If there are no first-order heirs, the second-order heirs inherit."

4. Handling the notarization of inheritance

When applying for shareholder registration due to inherited equity, notarized materials or legally effective documents such as inheritance certificates must be submitted. Therefore, after the inheritance process begins, equity inheritance notarization must be handled.

5. How do heirs handle equity inheritance procedures after the death of a natural person shareholder?

(1) If the company’s articles of association clearly stipulate that heirs cannot become shareholders, they can only inherit the property rights of the deceased natural person shareholder’s equity. 

Procedures:
Determine the value of equity: The heirs negotiate with other shareholders to determine the value of the deceased natural person shareholder's equity. If no agreement can be reached, they can jointly entrust a legal appraisal agency to evaluate the company’s assets and determine the value of the equity.
Transfer equity: Transfer the deceased natural person shareholder's equity to other shareholders of the company or legally transfer it to a third party with the consent of other shareholders.

Distribute the estate: All heirs inherit the cash obtained from the sale of the deceased natural person shareholder's equity proportionally.
 
(2) If the company’s articles of association do not stipulate that heirs cannot become shareholders, the heirs can register as shareholders.

Procedures:
For general situation: 
If the company has more than one shareholder, the procedures are:
Hold a shareholders' meeting or general meeting with all heirs participating, and make a resolution agreeing to admit all heirs as shareholders, inheriting equity according to the inheritance proportion. If any heir does not wish to become a shareholder, they can transfer their inherited equity to other heirs, other shareholders, or third parties with consent.

The company records the heirs' names, addresses, and the amount of capital contribution received in the shareholders' register.
Amend the articles of association.
Handle the equity change registration with the company registration authority.

For special situation:
If the company has only one shareholder, and that shareholder has died, the procedures are: Hold a meeting with all heirs according to the provisions of the company’s articles of association, make a resolution to admit all heirs as shareholders, and inherit the equity according to the inheritance proportion. Other procedures are the same as in the general situation.

Tips

1. Review the company's articles of association: Shareholders and their heirs should review the specific provisions of the company's articles of association. If the articles of association do not explicitly prohibit lawful heirs from inheriting shareholder qualifications after the shareholder's death, statutory inheritance procedures can be followed.

2. Cooperation of other shareholders: Other shareholders have an obligation to assist the lawful heirs in legally inheriting shareholder qualifications and exercising shareholder rights and obligations.

3. Actively and timely inheritance: Heirs should actively and timely inherit shareholder qualifications and exercise shareholder rights to protect their legal rights.


For more inofrmation, please feel free to contact
David Gao, Attorney at Law

Tel: 86 13611158067
Email: gaohexin@163.com