Inheriting shares in a joint stock company - the latest case law

At the end of last month, the Bulgarian Supreme Court of Cassation (SCC) ruled on a longstanding issue with regard to inheriting shares in a joint stock company (Judgement No 47, rendered on 31.07.2020 under commercial case No 673 on the inventory for 2019). The judgement of the Court is final and cannot be appealed.

The case

The Supreme Court of Cassation was referred to with the following question:

When registered shares are inherited, what does each of the heirs acquire?    

► sole ownership over a number of shares in proportion to the inheritance or    

► co-ownership in equal proportion over each of the shares

The case originated between a joint stock company and part of the six heirs of a deceased person, who owned 991 shares of the company capital. The main issue was whether the shares received by way of inheritance can be distributed equally among the heirs (1/6 of the shares for each heir - each heir acquires 165 shares by way of inheritance) or such acquisition is not acceptable and each share is co-owned in a 1/6 proportion by each of the heirs. The question is defining for the manner of exercising the heirs’ rights as shareholders – each of them individually or all of them with a common proxy under Art. 177 of the Bulgarian Commerce Act [1] ("CA").

Arguments of the parties

The heirs claim that the shares should be distributed equally among them and each heir should receive the proportionate number of shares (i.e. 165 shares per each heir in the present case). They sustain that the provision of Art. 177 of the CA is applicable only when one share is owned by several persons and no distribution can be made, while in the present case the shares are more than one and accordingly, they can be divided between the heirs. They also argue that the legal nature of shares should be considered as being closer to the one of receivables and not to the one of movable property, and should therefore be inherited in the same way as are receivables - distributed among the co-heirs in proportion to the inheritance share and not inherited in co-ownership like movable property.

The joint stock company as a respondent disputes the argument of the heirs and assumes a different approach. It claims that the provision of Art. 177 of the CA applies to each share of the inheritance estate, which by virtue of inheritance becomes co-owned by several persons and the indivisibility of the share leads to indivisibility in the exercise of the rights incorporated therein. According to the company, the existence of said legal norm, which governs the co-ownership of shares, is sufficiently clear and explicit and no other meaning or interpretation of the provision needs to be be sought. The company also claims that the shares are not receivables, as they objectify different rights and therefore their legal nature is different.

Opinion of the Supreme Court of Cassation

According to the Supreme Court of Cassation, when the inheritance estate includes more than one share and there is more than one heir, by virtue of the inheritance co-ownership arises with respect to each share. The Court assumes the view that the norm of Art. 177 of the CA is applicable in this case. The object of inheritance is each individual share, not a set of shares and therefore, when inherited, the shares are not automatically distributed among the heirs according to their proportion of the inheritance.

The Supreme Court of Cassation also accepts that the share as an available security has the quality of a property, which can be the object of property rights and differs from the receivables as an object of civil relations.

According to the Court, an answer in principle should be given regardless of the circumstance whether the inherited shares, in view of their number, type and class, number of heirs and their share in the inheritance, can be distributed among the heirs.

In view of the above, the Supreme Court of Cassation reaches the following conclusion:

When inheriting registered shares, each heir acquires co-ownership in equal proportion over each share, not sole ownership over a number of shares in proportion to the inheritance distribution.   

[1] Art. 177 of the CA: “The shares are indivisible. Where the share belongs to several persons, they shall exercise their rights in it jointly by appointing a proxy.”