What Happens to a Company if a Sole Shareholder Dies?
On the death of a sole shareholder, what happens to their company? In this article, we take a look at why you need to be prepared for this with the right company documents. Company Formations 24.7 provide up to date articles with every company we form that can help avoid certain unplanned situations. Our company secretarial team can also review existing articles to ensure they are up to date and fit for purpose.
What are articles of association, and why does a company need them?
The articles of association are written rules agreed by the shareholder(s). The articles will include details about the management of the company, legal responsibility and internal management affairs. This information will also outline rules affecting certain decisions that affect the company and the role of shareholders and directors in those decisions. There is a standard form of Model Articles that can be used, but these are widely considered as inadequate and many companies have their own rules built upon the Model Articles.
What happens to the day to day running of a company if a sole director dies
The primary concern is what will happen to the control and day-to-day running of the company. In most instances company bank accounts are set up so that only a director can authorise payments from the bank, this might include salaries, rent payments and utilities. With that sole director no longer around these critical bills will not be paid, the company will not be able to continue until a new director signatory is appointed.
The company will also be in breach of its statutory requirement to have at least one natural director at all times (s155 Companies Act 2006).
Company ownership if a sole shareholder dies
On the death of a sole shareholder dies the shares automatically pass to the deceased’s personal representatives also known as the estate executors. The voting rights of the deceased’s shares will be suspended until their estate is settled and the executors (or estate administrator’s if there was no will) transfer the deceased’s shares to their new owners.
The importance of reviewing your articles of association
The executor’s rights to transfer the shares are dependent on the particular company’s articles of association. Companies Act 2006 brought in new clauses in the model articles to help the transfer of control of a company if a sole director were to pass away without special provisions.
The executor’s rights to transfer the shares are dependent on the particular company’s articles of association. Companies Act 2006 brought in new clauses in the model articles to help the transfer of control of a company if a sole director were to pass away without special provisions.
Article 17(2) “In any case where as a result of death, the company has no shareholders and no directors, the personal representatives of the last shareholder to have died have the right, by notice in writing to appoint a person to be a director.”
Problems will arise if your company was incorporated prior to 2006 and you have not had its articles updated. Older articles require that share transfers must be approved by a director or an appointed company secretary. Without a living director or an appointed company secretary, the deceased’s personal representative must seek a court order to appoint a new director to approve the share transfer.
Our company secretarial team can review your company articles for you and ensure they have the correct provisions for your company circumstances so that in the event of death the beneficiaries of the estate do not need to go through a costly and stressful court ruling to maintain the company.
Get in touch if you would like to speak to us about reviewing your articles of association or having special provisions drafted. Our Company Secretarial department can discuss your specific needs and advise you on special drafting requirements.
Tel: 0808 168 3676
