Handing over a company on death – avoiding expensive court costs
Where a company has been run by a sole shareholder and director and that person dies, problems can arise in terms of transferring the business on to the next of kin or those who have been appointed under the deceased’s will to inherit the business.
Whether this is likely to be an issue will depend on the company’s articles of association. If the company has adopted old style ‘Table A’ articles (which will often be the case in terms of companies incorporated prior to the introduction of the Companies Act 2006), it is not possible simply for the personal representatives of a deceased sole director shareholder to appoint a new director of the company. The problem arises from the fact that there are no directors or shareholders remaining who can make such an appointment.
Neither can the shares of the sole deceased shareholder be transferred to another person so as to enable a new shareholder to appoint a director because there is no director who can approve the proposed transfer. This in effect creates a Catch 22 situation – a paradox from which it is not possible to escape without the assistance of the court.
The court can in theory assist in two ways. It might be possible to apply for rectification of the register of members so that the personal representatives are registered as shareholders. Once that has been achieved the new shareholders will then be in a position to appoint new directors.
Alternatively, it may be possible for the court to order a meeting of its own motion at which the personal representatives of the deceased are authorised to attend and vote for the purpose of appointing new directors.
Where a company has adopted the model articles introduced by the Companies Act 2006, the position is generally much more straightforward. Personal representatives of a deceased shareholder are able simply to appoint a new director without a court order. After a new director has been appointed in this way then they are then in a position to approve the registration of the deceased’s shareholding to the appropriate beneficiaries.
The moral of this is that all sole shareholder directors should check their current articles of association to see what form they take. If old style ‘Table A’ articles have been adopted then steps should be taken to update these as part of their general estate planning, so as to avoid a potentially expensive court application further down the line.
Jos Moule is a partner at national award-winning law firm, VWV. Jos can be contacted on 0117 314 5650 or at firstname.lastname@example.org.