Many companies operate with a sole director who is also the sole shareholder of the company.    Whilst the director may have had plans to pass on the business upon their death, sufficient provisions may not have been put in place in time, if perhaps the director has passed unexpectedly.

In order to ensure a smooth succession and ensure the continued operation of the business of the company is not adversely affected, a number of provisions should be put in place. This includes reviewing the sole director/shareholder’s Will and the company’s articles of association.

Firstly, the sole director should ensure that at least one other person, (for example, a family member or the company’s accountant) has access to the important information relating to the company such as passwords, codes and its general operations. It will also need to ensure provisions are put in place so that at least one other person has the authority to make payments to any employees and to be able to continue running the business seamlessly immediately following the sole director’s death.   This person does not have to be appointed a director however.

Secondly, the director then has two options.

They can either appoint a second director whilst they are alive, which will then ensure continued management immediately following their death. Steps can be taken to tailor the company’s articles of association to ensure that the original sole director/shareholder and their successors are given certain protections.

Alternatively, if the sole director/shareholder does not appoint a second director, they should ensure that they have in place a valid Will, so that immediately upon their death, there are validly appointed personal representatives who are acting in the interests of the sole director/shareholder’s estate.   This will ensure that there are no delays in being able to promptly appoint a director (provided suitable provisions are encompassed in the articles of association of the company as mentioned below).  A problem may arise if there is no Will in place, as this would mean a delay in the appointment of a director because first, the personal representatives would need to apply for the grant of Letters of Administration in order to be officially appointed as the deceased’s personal representatives.

If, following the sole director/shareholder’s death, it is preferable to leave the decision of the appointment of a director to the estate, then it is important to ensure that the company’s articles of association actually gives the power to those validly appointed personal representatives to promptly appoint a director.  This director could be one of the personal representative themselves or some other suitable person that the sole director/shareholder may have expressed a desire to appoint in such circumstances.        Since 1st October 2009, the Model Articles of Association (Article 17(2)) have enabled the personal representatives of the last surviving shareholder in a company that has no director validly appointed to appoint a director.   However, many companies do not have this provision in their articles or have amended or bespoke articles and so it is important in each case to ensure that a company’s articles of association are reviewed.  

If suitable measures are not put in place to appoint a director in such cases, then this could cause a number of problems for the company, its succession and ultimately have an adverse affect on the company’s value if the company is not managed properly in the interim and may even require the interested parties to make an application to the court to facilitate the appointment of a director and/or registration of shareholders.

If there is no director to file accounts or confirmation statements on behalf of the company, then there is the possibility that the Registrar may apply for the company to be struck off the Companies Register. This would then require a further court application to restore the company to the register, otherwise there can be no transfer of shares in the company to the ultimate beneficiaries.

Upon the death of a sole shareholder, their personal representatives will automatically have the legal title to the shares vested in them.    However, unless the articles of association of the company state otherwise, there will be no right for those personal representatives or the ultimate beneficiaries of the shares, to vote in relation to matters which require shareholder approval until they are registered in the Register of Members as shareholders in the company.  Usually, in order to approve that registration, a director (or in some cases a company secretary) would need to be validly appointed to update the register of members and register the personal representative or the successor as shareholder. This is also why it is important to ensure directors are validly appointed and avoid unnecessary applications to the court.

If you are looking to organise succession for your company whether upon your death or considering your exit strategy upon your retirement and require a review of your Will and your company’s articles of association or wish to discuss the options available to you, please contact our company and commercial department at Croydon on 020 8680 2638.

 “The information contained in this article is for general interest purposes only.  We believe the information contained in this article to be correct at the time of publication. It is important to seek professional advice on any specific issues as the application, interpretation and impact of laws can vary widely based on the specific facts involved. Accordingly, the information on this site is provided with the understanding that Streeter Marshall, the authors or publishers are not herein engaged in rendering legal advice and accept no responsibility for loss occasioned by any person acting or refraining from acting as a result of the material contained herein.”