What happens to a company when a sole director dies?


What happens to a company when a sole director dies?

Proper estate planning is essential for any person but did you also know that it is particularly important if you are a sole director of a company? For example, have you ever wondered what would happen to your company in the event of your death? Or who would run the company in your place?

If you answered yes to either of those questions, you may need to consider your estate planning carefully and ensure that you have a valid Will in place which also addresses your company’s needs.

How can a Will impact who runs your company?

Typically, where a company has more than one director, it is the surviving directors who will take over and continue to oversee the ongoing operation of the company, should one of the directors die. However, the situation looks very different in the case of a company that has a single or sole director.

When a sole director dies leaving a valid Will

Taking a look at section 201F(2) of the Corporations Act 2001, if a sole director who is also the only shareholder, dies and they have appointed a personal representative (an executor) or trustee under a valid Will, it is their personal representative/executor or trustee who will have the power to appoint someone to be the director of the company.

In other words, if the sole director left a valid Will, the executor or trustee will be able to appoint someone, including themselves (see section 201F(4) of the Corporations Act 2001), to act as director.

When a sole director dies without a Will

If there is no valid Will in place, the director’s next of kin or nearest relative will be required to apply to the Supreme Court of Victoria for a Grant of Letters of Administration to enable them to manage and distribute the deceased estate.

Risks of not having a Will in place as a sole director of a company

If a sole director dies without a valid Will, the process of applying for a grant of Letters of Administration can be lengthy and, in some circumstances, complicated. Delays in finalising the deceased estate can place the company at risk of not having a duly authorised person to operate it during this time.

A subsequent consequence of not having a director to operate the company means that:

  • the company may become unable trade or continue operating;
  • important decisions regarding the company’s finances cannot be made; and
  • the payment to staff and or suppliers may cease or be interrupted.

These consequences can have a significant ripple effect on not only the reputation of the company but also the value of the company.

Get help from an estate planning lawyer

Having a valid Will in place, for individual and sole directors, is a simple and effective way to protect your personal and business interests. To discuss your estate planning and how you can ensure there are appropriate safeguards in place for you company, talk to one of our lawyers today.

Contact David Davis Lawyers

Phone: 03 9014 1299

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