What Happens to a Company if a Sole Director or Sole Shareholder Dies?
Have you or your clients thought about succession and what might happen to their business if they were to pass away unexpectedly? We have recently at Stanley Davis had several queries on this matter so I am sharing this note looking at the key issues and to emphasise the importance of reviewing your Articles of Association. Advance planning of what should happen to the control and ownership of a company if a director/shareholder should die is a critical matter that company directors and shareholders should be well prepared for and have properly minuted and documented.
Company Control if a Sole Director Dies
The first concern is what will happen to the control and day-to-day running of the company, including who will pay the bills including any salaries, rents, and utilities.
Many business bank accounts are set up so that only a director can authorise payments from the bank and with that sole director no longer around bills will not be paid, the company will not be able to continue until a new director signatory is appointed.
The company will also be in breach of its statutory requirement to have at least one natural director at all times (s155 Companies Act 2006).
Company Ownership if a Sole Shareholder Dies
When a shareholder dies the shares automatically pass to the deceased’s executors (personal representatives). The voting rights of the shares are suspended until the deceased’s estate is settled and the deceased's executors (or estate administrator’s if there was no will) transfer the deceased's shares to their new owners in accordance with their Will.
The Importance of Reviewing Your Articles of Association
The executor’s rights to transfer the shares are dependent on the particular company’s articles of association. Companies Act 2006 brought in new clauses in the model articles to help the transfer of control of a company if a sole director were to pass away without special provisions.
Article 17(2) “In any case where as a result of death, the company has no shareholders and no directors, the personal representatives of the last shareholder to have died have the right, by notice in writing to appoint a person to be a director.”
Problems will arise if the company was incorporated prior to 2006 and has not had its articles updated. These articles require that share transfers must be approved by a director or an appointed company secretary. Without a living director or an appointed company secretary, the deceased’s personal representative must seek a court order to appoint a new director to approve the share transfer.
Our company secretarial team can review your company articles for you and ensure they have the correct provisions for your company circumstances so that in the event of death the beneficiaries of the estate do not need to go through a costly and stressful court ruling to maintain the company.
Call our Company Secretarial Department for Advice
0207 554 2261