It’s very common for smaller limited companies to be managed by a single director, who is often also the only shareholder.
If you are a sole director/sole shareholder, have you thought about what would happen to the company on your death? It might be that you would want the business to pass to family to continue in your absence, but if your company’s articles of association don’t deal with your death adequately, there’s a risk that the company could grind to a halt, with little of value left for your family.
The issue arises because there are generally two ways of appointing new directors – a resolution of the existing directors (but there will be none) or an ordinary resolution of the shareholders (again, there will be none). Unless the articles of association say otherwise, the family will either have to wait for probate to complete in order for the personal representatives under the Will (or under the intestacy rules, if there is no Will) to have the right to register new shareholders, or make an application to court to update the company’s register of members. Either route could take considerable time and the limbo period could have serious consequences for the company. Any prolonged period with no directors could impact ongoing relationships with customers, suppliers and bankers. It could stop the company trading.
The good news is that if your company has adopted Model Articles (the standard form of Articles brought in by the Companies Act 2006) then they contain an explicit right for the personal representatives to appoint a new director, thereby allowing the company to continue its day-to-day trade. If you have bespoke Articles, then they may also contain a similar right but it’s sensible to check. The issue generally arises with older companies that have adopted so-called “Table A” articles of association.
Another point to note is that, if you have a Will, then your executors become your personal representatives immediately on your death, and any right under the articles of association to appoint a new director arises immediately. However, if you do not have a Will, then you don’t have any personal representatives until you obtain a grant of letters of administration, so there will still be a considerable delay.
If you’d like advice regarding your company’s articles of association, please contact BHW’s corporate and commercial team on 0116 289 7000 or email info@bhwsolicitors.com.