The Virginia Supreme Court in Jimenez v. Corr rules that the closely-held company’s obligation to buy back a decedent’s share under the shareholders’ agreement governs how the company stock is going to be distributed.

The decedent died with 95 shares in a closely-held Virginia company, which, according to the shareholders’ agreement should be purchased back by the company upon the death of the shareholder. The shareholders’ agreement also provided that the stock would be free from buy-back if the shares were passed to the decedent’s immediate family. On the other hand, the decedent’s will let the shares to pass along and pour over into her revocable trust.

The Virginia Supreme Court ruled that the disposition of the share under the decedent’s will did not exempt the shares from the buy-back clause under the shareholders’ agreement because not all trustees and beneficiaries under the revocable trust were immediate family members, for example, the decedent’s son-in-law. Thus, the decedent’s shares were subject to the mandatory purchase scheme under the shareholders’ agreement.

See “Jimenez v. Corr: Form Trumps Substance in Distribution of Closely Held Stock,” McGuireWoods.com (November 26, 2014).

Posted by Jiaqi Wang, Associate Editor, Wealth Strategies Journal.