This is a potential problem on the death of the single shareholder/director for companies formed prior to 1 October 2009 using standard Table A Articles of Association. The problem lies in the fact that Table A has no provision to deal with succession following the death of that single shareholder/director. There is no director to enter a change of shareholder nor is there a shareholder available for a general meeting.
The effect of the above is that there may be a significant delay in administering the Estate. The executor may have to apply to Court for an order to register the share transfer and this is an expense that can run into many thousands of pounds for the Estate. Additionally, if the company has employees and continuing trade, there is no one to manage the company nor anyone with an authority to set up a bank account or keep that trading running.
This issue can be resolved in one or more ways and can include the following:
- Appoint a second director who would be able to manage the company in the event of the death of the principal director/shareholder.
- Arrange for the company’s Articles to be replaced with the new Model Articles.
- Appoint a company secretary with the power to register a share transfer in the event of death could also be appointed.
The company’s (model Articles) regulations 2008 came into force on 1 October 2009. These Articles provide that if the company has no shareholders and no directors as a result of death, the personal representatives of the last shareholder to have died have the right to appoint a person to be a director without the need for them to be registered as a shareholder first. If the company was incorporated under the 2006 Companies Act regime and is using the model Articles, then Article 17(2) allows the personal representative of the deceased shareholder to appoint a new director in the circumstances mentioned above.
It is not only death that can cause significant problems running a company. It should be borne in mind that business continuity may be drastically affected if the sole director becomes severely ill or incapable of carrying out his or her duties for whatever reason. A business Lasting Power of Attorney (business LPA) could be used to let the current director/shareholder appoint one or more people (’the Attorneys’) to help make decisions or to make decisions on behalf of that single director/shareholder should they become incapacitated. They deal with their company affairs including exercising their rights as a shareholder of the company either commencing immediately or upon them suffering mental incapacity. Obviously care must be taken to ensure that the Attorney whilst acting does not act outside of the current Articles of Association. Again, a second director appointed could resolve the issue.
An important point to note is that a directorship does not pass under a Will/Intestacy nor can a director be appointed under the Power of Attorney. It is extremely important that professional advisers review their client’s companies and shareholdings on a regular basis and that single directors/shareholders are aware of the problems contained in this Article as the consequences can be significant in terms of delay and cost.