Tips For Handling The Death Of A Sole Director

As much as no one wants to contemplate their own mortality, it may be one of the most important things to consider for sole directors or shareholders.

In the event that the articles of a company do not adequately deal with what will happen if a sole director-shareholder dies, there could be practical difficulties that prevent the company from being able to carry on normal business operations.

In respect of shares held at the time of death, the company’s articles will likely require the deceased’s personal representatives to either transfer the shares or to elect to be registered as the new shareholder.

The Model Articles provide that, in the event that the company has no shareholders and no directors as a result of death, the personal representatives of the last shareholder to have died have the right to appoint a person to be a director without the need for them to be registered as a shareholder first.

Table A does not contain an equivalent provision so a company may find itself in a position where it is unable to appoint a director without leave of the court. This can be a lengthy process as the personal representatives will often need to await a grant of probate before the company can register them as the holder of the shares.

It is possible for a small business to suffer catastrophic consequences as a result of such a delay, as the business could soon find itself in a position where it is unable to pay its creditors.

Tips for sole directors

Due to the common pitfalls mentioned above, if you are a sole director you should take the following actions:

• Review your company’s existing articles of association to ensure they are suitable for the business practice you have adopted. Check the articles contain adequate provisions in the event of your death. If the articles are found to be unsuitable, consider adopting bespoke articles.
• In the event of your death, you should appoint a company secretary who can file a transfer of shares in the name of the company.
• An additional director should be appointed. It is possible to maintain control of decisions at the board level by amending the articles of incorporation in order to allow the chairperson to have a casting vote when there is a division on the board.

As a further benefit of appointing a second director or a company secretary for your company, you will be able to share the administrative responsibilities, such as the annual filings with Companies House.

If you enjoyed this article, then why not read our post on form 17 or ATED next?

Thandi Nicholls Ltd
Creative Industries Centre
Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG