Shares in a private corporation are ordinarily the most difficult asset an Ontario estate holds, and the difficulty is not primarily legal. Legal title to the shares passes to the estate trustee, who is registered on the corporation's records by transmission on production of the certificate of appointment and the supporting documents the corporation requires. What makes the asset hard is that three separate things are happening at once and each pulls in a different direction: the shareholder agreement may already dictate what happens to the shares, the business needs decisions made while nobody has clear authority, and the shares have to be valued for the estate even though no market exists. This article deals with administering the shares once someone has died. Structuring the ownership beforehand is a planning question.
What Happens to the Shares on Death?
The shares do not vanish and they do not automatically pass to the beneficiaries. They form part of the estate, and the estate trustee steps into the shareholder's position for administration purposes.
Registration is by transmission rather than by transfer. The corporation is asked to record the estate trustee as the holder, and what it will require is the certificate of appointment or a notarial copy, the share certificate if one was issued, and whatever its own articles, by-laws or shareholder agreement specify. A corporation is entitled to satisfy itself that the person presenting the documents has authority, which is a large part of why probate is generally unavoidable where private shares are involved. Our guide to whether probate is needed when there is a will explains why the institution holding the asset drives that answer.
Voting rights and dividend entitlements have to be dealt with in the interim. Between the death and the transmission there is frequently a period in which nobody is registered as able to vote the shares. Where the deceased was the sole director and officer of the corporation, that gap can stop the business functioning. This is a genuinely time-sensitive feature of the whole exercise and it is the reason these matters should reach a lawyer in days rather than months.
What Does the Shareholder Agreement Do?
Read it before anything else. A shareholder agreement frequently overrides what the will says, because the deceased could only dispose of what they were free to dispose of.
| Provision | Effect on the estate |
|---|---|
| Mandatory buy-sell on death | The estate is obliged to sell and the survivors obliged to buy. The shares convert to a receivable |
| Right of first refusal | The estate can only sell to a third party after offering the shares to the other shareholders |
| Agreed valuation formula | The price is what the formula produces, which may bear little relation to fair market value |
| Insurance-funded buyout | Proceeds fund the purchase; who owns the policy determines the tax and probate treatment |
| Restrictions on transfer to family | A gift in the will to a child may be unenforceable against the corporation |
| Deadlock and drag-along terms | Can force the estate into a transaction it did not choose |
Where the agreement fixes a price, that price generally governs the transaction but does not necessarily govern the value reported for tax. Those are different questions answered by different rules, and assuming one figure serves both is a common and expensive error.
Where there is no shareholder agreement, which is common in single-shareholder and family corporations, the estate trustee is left holding an asset with no exit mechanism, no market, and possibly no co-owner willing to buy. That is a harder position than a restrictive agreement, not an easier one.
How Are the Shares Valued?
Fair market value means what a willing buyer would pay a willing seller, both informed and neither compelled, measured as at the date of death. It is not book value, not the amount originally invested, and not what the family believes the business is worth.
Private company shares are the most contested valuation class in estate administration, and they generally require a professional valuation rather than an estimate. The figure feeds several places at once:
The Estate Administration Tax deposit, calculated on the value of the estate when the application is filed.
The Estate Information Return, filed with the Ministry of Finance within 180 days of the certificate.
The deceased's final income tax return, where the deemed disposition rules apply.
The division among beneficiaries, where some take shares and others take cash.
Those filings draw on the same valuation work but do not cover the same assets or treat them the same way. Assets outside probate can still matter for income tax, and rollovers change tax values. It is not correct to say the same figures support all of them.
Minority discounts, marketability discounts, and the effect of a shareholder agreement on transferability are all live valuation issues, and they are where a professional valuation earns its cost. A valuation that ignores a restrictive transfer provision is likely to overstate the value, and an overstated value produces an overstated tax deposit.
Our Estate Administration Tax guide sets out what has to be included in the estate value, and our guide to paying the tax covers the deposit mechanics, which matter here because a large private-company valuation can produce a deposit the estate cannot fund from liquid assets.
Where Does the Secondary Will Fit?
Private company shares are the classic secondary will asset. Ontario recognises the use of primary and secondary wills to limit probate tax, confirmed in Granovsky Estate v. Ontario (1998) and reaffirmed on appeal in Milne Estate (Re), 2019 ONSC 579 (Div. Ct.), after the first-instance decision in Milne had cast doubt on allocation clauses and Panda Estate (Re), 2018 ONSC 6734, had declined to follow it.
The mechanism is that the shares are governed by a secondary will that is never submitted for probate, because the corporation will accept the estate trustee's authority without a certificate. The primary will covers the assets that require one.
The certificate that makes the strategy work is a Certificate of Appointment of Estate Trustee With a Will Limited to the Assets Referred to in the Will.
Typical secondary will assets are private company shares, shareholder loans, personal effects, partnership interests, and amounts owed by family members.
The drafting trap is that standard revocation clauses cancel one another. Both wills need revocation language that leaves the other standing.
None of this helps an estate where the planning was not done. Where a single will covers everything, the shares are in the probated estate and the tax is calculated on their value. That is the position a great many estates are actually in.
Where This Goes Wrong
Reading the will before the shareholder agreement. A gift of shares to a child is subject to whatever the corporation's constating documents and any shareholder agreement provide. Discovering a mandatory buy-sell provision after telling a beneficiary they are inheriting the business is a conversation nobody wants to have twice.
The sole director problem. Where the deceased was the only director and officer, banking, payroll and contracting can stall immediately. This should be triaged in the first week.
Valuing on book value. The balance sheet figure is not fair market value, and using it produces a wrong tax deposit in one direction or the other.
Assuming a valuation is fixed against review. A date-of-death valuation provides evidence of fair market value and, where the tax rules use fair market value as the recipient's acquisition cost, supports that opening cost base. The Ministry of Finance can examine the basis for a reported value and substitute its own on an audit.
Treating the deemed disposition as automatic in every case. Unless a rollover or an exemption applies, the Income Tax Act generally treats the owner as having disposed of the property at fair market value immediately before death, and any resulting capital gain is brought into income at the current one-half inclusion rate. Whether a rollover is available, and whether a lifetime capital gains exemption on qualified shares is in play, are questions for the accountant and they change the outcome materially.
Distributing before the corporate position is settled. Where the shares are illiquid and the other estate assets are not, there is pressure to pay the cash beneficiaries first. That leaves the estate exposed if the share value moves or the tax position changes.
If an estate includes shares in a private corporation, you can book a free call early, because the corporate steps and the tax steps have to be sequenced together.
Frequently Asked Questions
Do private company shares have to go through probate in Ontario?
Generally yes, unless a secondary will was prepared and the corporation is prepared to accept the estate trustee's authority without a certificate. A corporation is entitled to satisfy itself that the person presenting transmission documents has authority to deal with the shares, and in practice most will ask for a certificate of appointment. Where the shares are governed by a secondary will that does not need to be submitted for probate, their value is not included in the estate value covered by the primary certificate.
What is transmission of shares?
Transmission is the recording of a change in the registered holder that occurs by operation of law rather than by a voluntary transfer, which is what happens on a death. The estate trustee produces the certificate of appointment and whatever documentation the corporation requires, and is recorded as holding the shares for the estate. It is a different process from a transfer, which is what happens later when the shares are sold or distributed to a beneficiary.
Does the shareholder agreement override the will?
In practical terms it frequently does. A testator can only dispose of what they were free to dispose of, so where a shareholder agreement contains a mandatory buy-sell provision, a right of first refusal, or a restriction on transfers, those provisions shape what the estate can actually do with the shares regardless of what the will says. Reading the agreement is the first step in administering this asset.
How are private company shares valued for an Ontario estate?
At fair market value as at the date of death, which generally requires a professional valuation rather than an estimate. Book value is not fair market value. The valuation has to account for the size of the interest, marketability, and any transfer restrictions in a shareholder agreement, all of which can affect what an arm's length buyer would pay. The figure feeds the Estate Administration Tax deposit, the Estate Information Return, and the final income tax return, but those filings do not treat it identically.
What if the estate cannot afford the tax on an illiquid business?
This is a recurring problem, because the tax is calculated on value while the asset produces no cash. Options include funding the deposit from other estate assets, a certified draft drawn on the deceased's own account payable to the Minister of Finance, or in a genuine case an application under section 4 of the Estate Administration Tax Act, 1998 to obtain the certificate before the deposit is made, which requires urgency, financial hardship, and sufficient security furnished to the court.
Who runs the business while the estate is being administered?
Whoever the corporation's records and constating documents allow to act. Where there are other directors and officers, the business continues and the estate's issue is the shares alone. Where the deceased held all of those roles, there is a gap that has to be closed quickly, generally by the estate trustee taking the steps needed to appoint directors once the shares are transmitted. The length of that gap is the main operational risk in this kind of estate.
This article provides general information about Ontario law and is not legal advice. Speak with a lawyer about your specific circumstances.