A Company Law Problem for One-Man Companies

When the only shareholder/director of a company dies, this can cause severe difficulties for the personal representatives who are looking after the deceased’s estate, unless the company’s Articles of Association make suitable provision.

Companies with Articles which came into force from 2009, do not generally have a problem, because where, as a result of death, the company has no shareholders and no directors, the personal representatives of the last shareholder to have died usually have the right, by notice in writing, to appoint a person to be a director.

However, companies having earlier Articles may well be in trouble, unless there is an express Article included that authorises the appointment of a director.

Without a director (or secretary) having the authority to register the personal representative’s or beneficiary’s name in the register of members, the company is effectively trapped in a vacuum. A personal representative or beneficiary cannot exercise any right as a shareholder unless they are registered in the register of members. As a result, they are unable to pass a shareholder resolution to appoint a director or to amend the Articles.

In such circumstances, it may be necessary to apply to the court for an order to appoint a new director so as to bring the company out of its vacuum. This is an expensive and time-consuming mechanism.

Everyone should of course have a will, but it is particularly important in this situation that a sole shareholder/director should have a valid will which is kept up to date. That person should of course ensure that their will is, at all times, consistent with the company’s Articles in order to reduce the likelihood of any conflict or confusion between the two documents, with particular reference to the ability to transfer the shares on the sole shareholder/director’s death.

The easiest solution is to always have 2 directors but also to have a valid and up-to-date will setting out what is to happen to your shares.

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