Woodfi nes Solicitors
■ If there is no surviving director or secretary, PRs cannot be added to the register.
■ Without being registered, PRs cannot vote the deceased shareholder’s shares to appoint a new director.
Averting the risks from the death of a sole director or shareholder
Svetlana Gooderham Associate Corporate & Commercial Woodfi nes Solicitors
For companies with a sole director and shareholder, the death of that individual can create signifi cant legal and operational difficulties. Without proper planning, the company may be left without anyone authorised to manage its aff airs, leading to delays, uncertainty, and potential fi nancial losses and business disruption. When a sole director/shareholder passes away, there is no one left with the authority to appoint a new director. Unlike companies with multiple directors, where remaining board members can continue operations, a sole director company is eff ectively paralysed. Urgent action is needed to ensure a new director is appointed as soon as possible.
What happens to the deceased shareholder’s shares? When a shareholder dies, their shares do not automatically transfer to a new owner. T e process depends on whether they had a valid will. If there is a valid will:
■ T e will appoints executors, also known as personal representatives (PRs). Executors appointed by a will have authority to deal with the deceased’s estate from death but often need to apply for a grant of representa- tion (Grant of Probate).
■ T ese PRs will eventually distribute the shares in line with the will.
If there is no will (intestacy):
■ No one has immediate authority to administer the deceased’s estate.
■ T e court must appoint administrators (also known as PRs) as established by the rules of intestacy, through a grant of representation (letters of administration). ■ Until this is done, no one can deal with the shares.
Why can’t a new director be appointed immediately? Even when personal representatives are appointed, their ability to appoint a new director depends on the company’s Articles of Association. If the Articles allow PRs to appoint a director, they can
do so by written notice, ensuring business continuity. If the Articles do not permit PRs to appoint a director, the process becomes much more complicated. PRs can only exercise shareholder rights, such as
appointing a new director, if they are added to the company’s register of members. However, this registration can only be done by an existing director or company secretary.
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■ PRs must wait until they obtain a grant of probate, which can take months.
During this time, the company has no director, meaning:
■ Salaries and supplier payments cannot be processed. ■ T e company cannot enter into contracts. ■ Business operations may come to a halt.
If PRs are unable to be registered as members of the
company and appoint a new director, they can apply to the court under Section 125 of the Companies Act 2006 for rectifi cation of the register. However, this process is costly, time-consuming, and disruptive to the business.
How to prevent this problem T e easiest solution is to ensure that the sole director/ shareholder has a valid will, and the company’s Articles of Association contain provisions allowing PRs to appoint a new director without needing to be registered as members. By taking this simple step, sole director/shareholders
can protect their business from unnecessary delays, legal costs and operational shutdowns in the event of their death. If you are a sole director/shareholder, it is strongly
recommended that you ensure that you review your com- pany’s Articles of Association and estate planning arrange- ments. Our experts from the corporate and private client departments have extensive experience and can provide tailored solutions to safeguard your company’s future.
Contact the Woodfi nes Solicitors team at www.woodfi
nes.co.uk
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