Introduction 

When running a company, dealing with estate planning is often a low priority for the shareholders/directors. However, I have been asked on numerous occasions in the past for advice from families, other shareholders etc after an unexpected death of a director and/or a shareholder. It makes sense to plan for such circumstances.

What happens if a shareholder and/or a director dies?

Shareholders

If a shareholder dies, you should check:

  1. the shareholders’ agreement (if any); and
  2. the articles of association.

If there are no provisions in the shareholders’ agreement or articles of association dealing with the death of a shareholder: i) the shares will pass in accordance with the deceased’s Will or, if there is no Will, under the intestacy rules; and ii) the beneficiaries under the Will or the intestacy rules (perhaps family members of the deceased with no real knowledge of the business) may end up having a say in crucial business decisions.

Directors

If a director dies and there are other directors, the company can continue to operate.

If the deceased is the company’s sole director but there are other shareholders, the surviving shareholders can appoint a new director.

Sole shareholder and director

Where a person dies who is the sole director and shareholder, what happens to his/her shares will depend on the articles of association and his/her Will (if any).

If the company has adopted Model Articles, the personal representatives can appoint a new director without the need to seek a court order. If the old Table A articles have been adopted (pre-2006 Companies Act), the personal representatives have to request a court order to appoint a new director.

If bespoke articles have been adopted, it will depend on what they state.

Conclusions

Whilst it is hoped that these circumstances will never arise, in my view, it is important to plan for the possibility of a shareholder and/or a director dying. What should happen in such circumstances can be provided for by including specific provisions in the company’s articles of association or a shareholders’ agreement. It is also important to put in place a Will and perhaps a Lasting Power of Attorney.

Contact Richard Jenkins on 07837 762705 or Richard@clariclegal.co.uk for further advice or assistance.

 

This should not be relied upon for legal advice.