Why have a Will?
If you die without leaving a valid Will, there may be long delays and difficulties with the distribution of your business. Your dependents can be left waiting lengthy periods for much needed money.
Normally, if a company director dies and there are other directors, they can continue to manage it until the shares are transferred to the beneficiaries under the will.
However, when a sole company director dies without leaving a will, it can cause complications and distress. The death of a sole director usually means no-one is properly authorised to immediately manage the company.
If the sole director who is also the sole shareholder of a company dies, the risk of uncertainty is much greater.
Under legislation, if a single member/director of a proprietary company dies, the executor or other personal representative appointed to administer the deceased’s estate may appoint a new company director.
The new director has all the powers, rights and duties of the deceased director and can keep the company running until shares are transferred to beneficiaries. The beneficiaries may then appoint new directors if they wish.
The executor is normally and most efficiently appointed by a valid Will. However, where there is no will, a near relative, if available and capable, would have to apply to the NSW Supreme Court for letters of administration to manage the estate. This could take weeks or months.
In the absence of any immediate relatives or other obvious people to deal with the estate, the NSW Trustee and Guardian may step in and administer the deceased estate. However, this process can also take months.
During the period when there is no director, with no-one properly authorised to make management decisions or act for the company, it may be unable to operate.
Banks and other financial institutions may not be willing to accept instructions in relation to a company’s trading account until they are satisfied there is someone properly authorised to act for it. Staff and suppliers may not be able to be paid, which will quickly have a deteriorating effect on the business. The company’s reputation and value could be drastically reduced.
If someone is willing to purchase the company, they may not be able to do so quickly because, until the administrator has been appointed and settled the estate, there will be no recognised owner of the shares who can authorise their transfer.
Even if the final decision is taken to wind up the company so all the beneficiaries can be paid out, the delay may significantly reduce the value of the company from it’s potential value if it had been able to:
- continue operating in the interim period; or
- be sold immediately on the death of the owner.
If you are a sole shareholder/director of a company, you should have a will which should name the beneficiary(s) of your shares.
Your company is considered a separate legal entity from you which can hold property in its own right? Consequently, when you die, property owned by your company does not automatically pass to the beneficiaries named in your will.
If your company owns say an office, office furniture, and a company vehicle, even if you are the sole director and sole shareholder of your company, your company is the owner of that property.
Both your will and your company constitution affect the distribution of your assets according to your wishes, upon your death. We therefore recommend that you make a will and have your company constitution reviewed to ensure it meets your succession planning needs.
Why have a Power of Attorney?
If you are a business owner, director or partner and you become temporarily or permanently incapacitated and you have no Enduring Power of Attorney or a General Power of Attorney, the business can be placed in a very precarious position with no-one authorised to sign documents or make business decisions or discuss your financial affairs with your bank or creditors on your behalf.
If you have not appointed an attorney to act for you if you are incapacitated, the business may be unable to trade for the duration of your incapacity.
What now?
Contact us at Mid Mountains Legal. We can help business owners protect their needs, those of their family, their business and it’s clients, directors and shareholders.
