When it comes to planning for the future of your business, one important consideration is what will happen to your company when you pass away. If you're a sole director and shareholder, your death could leave your company in a state of limbo, unable to make decisions or continue operations. Without provisions in place, the company may face significant challenges, such as an inability to update the register of members or appoint a new director. This could lead to a halt in business operations and financial difficulties.
To prevent this, it is essential to review your company’s articles of association and ensure that you have the necessary provisions in place to address these concerns. By taking the right steps now, you can ensure that your company continues to function smoothly, even in your absence. This article explores the potential risks and offers practical advice on how to plan for the future of your company, including the importance of an updated will, succession planning, and the role of personal representatives.
Where should you start?
Review your company’s articles of association. It may be that the articles already contain the necessary provisions.
What will happen to your company when you die?
Once a sole director and shareholder dies:
- there will be no directors to make the necessary decisions and payments on behalf of the company or shareholders to appoint a new director. The company will be left with no one to run it.
- the register of members cannot be updated, as this is something only a director is able to do, meaning the sole shareholder will remain the registered owner of the company’s shares.
- therefore, it may be that the everyday running of the company can no longer function (decisions that require director/shareholder input).
It is important to make provisions now, to prevent a ‘stalemate’.
Can your personal representative resolve the potential issues?
It can take a significant amount of time for personal representatives to take control of the company or transfer the shares to another person. The personal representatives would need to obtain the grant of probate or representation before they are able to act, and during this time the company may run into financial difficulties.
If the company’s articles of association do not allow for the personal representatives to appoint a new director, the company will have no surviving director to enter the personal representatives’ details into the register of members, meaning the personal representatives will not be able to vote to appoint a new director or be able to transfer the deceased’s shares to another person.
In this situation, the personal representatives would have the option to apply to court to request the court to grant an order to replace the deceased member’s details with the personal representative’s name on the register of members prior to grant of probate, but this is costly and time-consuming.
What can you do now?
There are steps you can take now to mitigate the risk of facing the situation described above and ensure your company is able to continue to run even after your death.
- Review your articles of association;
- Ensure you have an executed will that outlines what will happen to the company shares. The provision should be consistent with the articles of association and any shareholders’ agreement;
- Consider if you have things in place should you become unable to make decisions for yourself; and
- Is now a good time to think about succession planning? If so, get in touch with our Wealth Management Team.
How can Tozers assist you?
We can advise you on what changes you can make to protect your business. You may need assistance to amend the company’s articles of association, advice as to the current legal position or help with appointing new directors and shareholders. Our Corporate and Commercial Team would be delighted to assist, do get in touch - 01392 207020.
