When a sole director of a company dies, there can often be difficulties. However, those difficulties are, perhaps, more evident where a sole shareholder dies who is also the sole director of a company.
The general position is that where a company has a number of directors and one of the directors dies, the surviving directors can continue to manage the organisation. If the sole shareholder of a company dies, the directors can continue to manage the company until the deceased shareholder's beneficiaries have the shares transferred to them.
However, there exists uncertainty where a sole director is also the sole shareholder. In this situation, Confirmation (the Scottish equivalent of Probate) is often required in order for the deceased's executors to be added to the company's register of members. The executors can then pass a resolution appointing a new director. This process can, unfortunately, be lengthy. Assets in the name of the company will effectively be frozen as nobody in the company has the authority to take decisions.
Articles of association
Helpfully, a company's articles of association, setting out the rights attaching to shares, provide some guidance. They narrate what should happen on the death of a shareholder and/or director of the company. It is essential that articles of association are kept under regular review to ensure that they provide for the future and cover what should happen in the event of death.
The latest model articles of association allow the executors of the last shareholder to have died to appoint a person to be a director, in the event that the company has no shareholders and no directors. Dependent on the articles a company has chosen to adopt, these may require to be checked to ensure that this situation has been provided for. Additional difficulties arise if the deceased does not have a valid Will in which executors are appointed. In this case, a court petition to have an executor appointed would be required. This can present an issue if a director is needed to act immediately.
Most importantly, any business owner or shareholder should ensure that they have an up to date Will which stipulates what should happen to their estate on death. The provisions of the Will should be checked to ensure that they are consistent with the company's articles of association thereby negating any conflict or confusion.
When it comes to a business owner in particular, professional advice should be taken when updating their Will, as the inclination can be to leave company shares to family members. However, some of them may not wish to be involved in the business at all! The most important consideration is to ensure that the Will, and the documents of the company they run, work together and don't contradict each other.
Planning for the future
Succession planning should be considered both in the context of a business life as well as a personal life. The appointment of an additional director at an appropriate time during lifetime will help to alleviate many of the problems caused by the death of a sole director and shareholder.
As a business owner, planning ahead will help to safeguard the business and ensure it can continue if the worst were to happen.
Should you wish to discuss putting in place a Will to suit your needs or considering future succession planning for your business, please do not hesitate to contact a member of our team who would be pleased to assist.