CANADA Trends and Developments Contributed by: Ian M Hull, Suzana Popovic-Montag and Nick Esterbauer, Hull & Hull LLP
owned, “shares or otherwise”, did not include a mort- gage that the shareholder held against the corpora- tion. As a creditor of the corporation, the court held that the deceased shareholder merely had the abil- ity to make a claim against the corporation once the mortgage had matured, and that the mortgage did not give the shareholder an interest in the corporation in the strict legal sense. It is also interesting to note that if a beneficiary receives a testamentary gift of corporate shares, they generally will not assume any kind of liability for the corpora- tion’s debts due to the principle of limited liability. A beneficiary who inherits shares simply acquires the rights attached to those shares. This also means that if the value of the shares become negative due to a deficit, a beneficiary will not be entitled to receive any- thing for their shares. Conclusion When using a will to dispose of corporate assets or corporate interests in Canada, several factors should be kept in mind. • Not every Canadian jurisdiction permits share- holders, even sole shareholders, to dispose of corporate assets in a will. While courts in Ontario, Manitoba, and Alberta have shown a growing will- ingness to permit such gifts, notwithstanding that such assets are technically owned by a corpora- tion, the law in this area still appears to be devel- oping. • When using a will to gift corporate interests, a secondary will may be used in some jurisdictions, including Ontario and British Columbia, to avoid the imposition of estate administration tax on those interests.
• When a will disposes of corporate interests, it is important that the will is consistent with any corporate governance instruments, like sharehold- ers’ agreements, that govern the transfer of shares upon a shareholder’s death. Testamentary gifts that are inconsistent with a shareholder agreement may not be void, but they may fail if they cannot be completed. Alternatively, the estate’s executor may be required to take steps to try to complete a transfer in accordance with both the shareholder agreement and the deceased shareholder’s will. • If a testamentary gift of shares fails because the deceased shareholder’s will is inconsistent with the shareholder agreement, it may still be possible to rectify the will so that the beneficiaries receive an inheritance consistent with the testator’s intent. • If a deceased shareholder gives corporate property using their will, corporate governance instruments may also be used to establish the shareholder’s intent for the purpose of rectifying the will. • When a will gifts corporate shares or corporate interests, it should also expressly address whether the gift includes liabilities owed by the corpora- tion to the shareholder, when applicable. Case law addressing whether such debts are included in testamentary gifts are inconsistent, making it difficult to predict with certainty when debts will be included in such gifts. It is also important to remember, however, that the law governing the disposition of corporate assets or inter- ests through wills is still evolving in Canada. Further change is expected, as new issues arise related to the disposition of corporate interests.
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