What happens when a sole shareholder & director dies?
Many clients own shares in private companies, so it is quite common for those shares to pass as part of the client’s estate. There can however be problems where the deceased was not only the sole shareholder in the company, but also the only officer of that company.
Until the Companies Act 2006 came into force, it was a legal requirement for all companies to have at least one director and a company secretary. However, for private (not public) companies, the requirement to have a company secretary became optional from 6 April 2008. This means it is now possible for a private company to have just one director and no company secretary.
Problems for PRs
This can lead to problems dealing with the company shares, either in accordance with the deceased’s will or under the intestacy provisions. The personal representatives will want to transfer the company shares to their names, to administer as part of the estate, or to transfer them to the beneficiaries of the estate. They may also need to be able to run the company’s affairs or access the company’s bank account to pay debts, such as tax liabilities.
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However, whilst the PRs control the estate assets, they cannot register themselves or the beneficiaries as shareholders of the company. Only the company’s officers have that power. And if the deceased was the sole officer, there will be no one to deal with the PRs request to re-register ownership of the shares. This also means the PRs cannot appoint directors, as only the company’s shareholders are able to do so.
This problem arose recently on a high-profile estate, where the value of the company ran into tens of millions. The PRs were in the invidious position of needing to take control of the company’s affairs, including paying its debts, but there was no one to register them as shareholders of the company. And because the deceased was the sole shareholder, there also was no one to appoint new directors to the company.
The PRs therefore had to apply to the Companies Court to be registered as shareholders of the company. Fortunately the Court agreed that this needed to be done rapidly, to ensure the company’s affairs were kept in good order. Once the PRs had been appointed as shareholders, they were then able to appoint new directors to deal with the running of the company and arrange a new mandate for the company’s bank account. Whilst matters were fortunately resolved quickly, the expense for the estate was substantial.
Having a company secretary, or a second director, would have avoided all that cost. So when a client is delighted to hear that his or her private company no longer needs to have a company secretary, it s worth bearing the consequences in mind for the client’s estate.
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