Planning for unexpected illness or death is often low on the priority list for many business owners. However, to minimise the burden on those left behind, as well as avoiding potentially serious implications for the company itself, it is important to put in place appropriate measures and straightforward procedures for dealing with the death of a company director.
When a company has more than one director
If a company has more than one director, the remaining director(s) may decide to take on the responsibilities of the deceased director and continue to run the business as usual. Alternatively, the company shareholders may wish to appoint a new director immediately to minimise the pressure on the surviving directors.
To approve the appointment of a new company director, a resolution of the members must be passed at a general meeting or by written resolution. Subsequently, Companies House should be notified of the new appointment on form AP01, which can be completed and filed online or by post.
The actions taken, however, depend on the rules and requirements set out in the company’s articles of association. Some private limited companies may stipulate that a minimum number of directors (above 1) is required at all times. If the death of a director results in the company being in breach of such a requirement, a new director must be appointed as soon as possible.
Similarly, public limited companies (PLCs) are legally required to have at least two directors at all times. If one of two directors dies, the shareholders must appoint a second director as soon as possible.
If the deceased director was also a shareholder, the existing directors or shareholders will authorise the transfer the shares in accordance with one of the following:
- the deceased’s will
- under the rules of intestacy, if no will exists
- pursuant to the provisions set out in the company’s articles and shareholders’ agreement
When a company has only one director
Dealing with the death of a director can be more complex when a company has only one director. If the company has surviving shareholders, they can call a general meeting and pass a resolution to appoint a new director. However, if the deceased sole director was also the sole shareholder, difficulties arise if specific provisions are not included in the company’s articles of association.
Normally, only existing directors and shareholders have the authority to appoint new directors, approve the allotment and transfer of shares, and add new shareholders’ to the company’s register of members. Similarly, directors are often the only persons permitted to authorise payments to employees, suppliers, and creditors. If the sole director-shareholder dies, there is no one to exercise these powers and authorise essential payments.
Solutions for dealing with the death of a sole director-shareholder
In the unfortunate event that the sole director and shareholder of a company dies, the options available to the personal representatives of the deceased will depend on the terms outlined in the company’s articles.
If the company was incorporated under the Companies Act 2006 with Model articles of association, the deceased’s personal representatives have the authority to appoint a new director. Once appointed, the new director can authorise the transfer of the deceased’s shares to whomever inherits them in accordance with the will or under the rules of intestacy. The director must then enter the details of the new shareholder(s) into the company’s register of members.
If the company was incorporated under the Companies Act 1985 with Table A articles, the personal representatives of the deceased are not authorised to appoint a new director. Instead, they will have to get a court order to approve the appointment, which can be a complex and time-consuming process. Until this is done, the shares of the deceased shareholder cannot be transferred to whomever is set to inherit them.
To avoid such unnecessary difficulties, minimise potential disputes, and reduce the risk of significant disruption to the business, it is crucial that appropriate provisions are clearly set out in the company’s articles of association – for example, the right of personal representatives to appoint a new director upon the death of a sole director and sole shareholder.
Unfortunately, many companies continue to operate without adequate provisions in their articles of association. It is, therefore, important to review a company’s articles on a regular basis, updating when necessary to meet the evolving needs of the business.
Tell Companies House about the death of a director
When a director dies, the law requires that Companies House is notified on form TM01 within 14 days. This form can be filed online or by post. Once received, Companies House will update the public record accordingly.
The company’s statutory register of directors (and register of members, if applicable) should also be updated immediately, stating the date on which the individual ceased being a director (and member, if applicable) of the company. Subsequently, details of any new director(s) and shareholder(s) should be entered in the relevant registers.
Naturally, it will be necessary to notify a number of other individuals and businesses, such as:
- company members
- company accountant
- service providers
- banks and other lenders
- commercial landlords
- customers and clients
- any other business associates or contacts who may be affected by the death of the director
Whilst no amount of planning can remove all of the challenges resulting from the death of a company director, preparing for the unexpected is the best way to minimise the stress and impact on those left behind,. To determine the best course of action and find out what options are available to you, we recommend seeking legal advice and professional guidance from a reputable solicitor.