When it comes to your company, it’s good to be ahead. Being prepared for every eventuality is absolutely necessary if you want to run successfully, because the business landscape is unpredictable and the very best and worst things can happen.
In the unfortunate event of the death of a sole director, many complications can arise.
In many cases, private companies have a sole director and – as it stands – a company no longer has to have an appointed company secretary. This means that all power and legal authority to make decisions on behalf of the existing company sits with one individual; the sole director.
If the sole director is deceased, the company falls under threat for the following reasons:
- Company employees, suppliers and creditors need to be paid, but there is nobody with the authority to do it.
- Assets might become frozen.
- Arrangements and transactions that need the director’s approval cannot be completed.
After the death of the sole director, shares might be given to whoever is selected under their will, or intestacy rules may apply, but the directorship of the company will not pass under the will or intestacy rules, and will terminate upon the death.
There is no way to appoint another director and in the absence of a secretary to authorise activity there isn’t a great deal you can do in the beginning. Personal representatives or beneficiaries cannot exercise these rights, which means a resolution cannot pass to amend articles or appoint a new director of the company, even if it seems fairly reasonable to assume who that would be (for example, the child of the deceased director, who was previously working for the company in another role).
If you’re a sole director, our advice would be to plan in advance of this event, and to seek legal advice to pull together documentation that determines what happens to your company in the event of your death. If you are a senior member of staff for an organisation and your sole director has passed away, now would be the time to speak to someone official about where you go next.
This is important because the matter is not straight forward. Companies incorporated under the Companies Act 2006 with model articles that form part of the constitution of the company might find that they can permit a personal representative of the shareholder that is now deceased to make big decisions. They might also have the ability to appoint a new director. This person will then be able to assist by helping the company continue to operate.
If you are a sole director, it is recommended that your company’s articles of association are reviewed and airtight, so that things are handled in the way you want them to be if you’re unfortunately deceased.
Has your company thought about succession planning?
If you are a sole director, it is really important you think seriously about this, because if your company cannot continue if you die, this could have a massive impact on what is left to pass down to your family or the people you love.
At the very least, you need to clearly state what you want to happen, and make sure someone you trust is in a position to carry out your wishes should you die.
You’ll need to make sure a new company director can be appointed, which can’t happen in your absence or without your instruction. You’ll also need to make sure you have personal representatives in place and that they know what to do with shares, which should be set out in the form of official documentation.
We suggest you take the following steps:
- Appoint two or more people as executors of your will, which should include a non-binding letter that details your wishes about how you would like the company to operate in the event of your death. This should include who you would like to appoint as the director of the company.
- You should add a provision to the company’s articles of association, and confirm the executors entitlement to entitlements to their shares.
- Amend the company’s articles of association to give the executors the ability to exercise the right to attach shares.
- Amend the company articles of association to enable executors to appoint a new director.
JMR Solicitors can help you, whether you’re a director who wants to secure the future of their company, or the family or staff member of a sole director who has recently passed away and you don’t know what to do. Our dedicated team of staff will hold your hand through the whole process and make it easy and painless for you. Call 0161 491 3933 or email firstname.lastname@example.org for a free chat or to arrange a consultation.