Why have a Will?
If you die without leaving a valid Will, there may be long delays and difficulties with the transfer of your business.
If a company director dies and there are other directors, they can normally continue managing it until the shares are transferred to the beneficiaries names in the Will.
However, when a sole company director dies without leaving a Will, it can cause complications and uncertainty, especially if If the sole director is also the sole shareholder of a company: usually no-one is properly authorised to immediately manage the company.
The Corporations Act 2001 provides that 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 deceased director’s powers, rights and duties 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 appointed by the deceased director’s Will. However, where there is no Will, a near relative would have to apply to the Supreme Court of NSW 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 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 be unwilling 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 an adverse effect on the business, reducing the company’s reputation and value.
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 and pay out all the beneficiaries, the delay may significantly reduce the company’s potential value had it 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 beneficiaries 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.
Both your Will and your company constitution affect the distribution of your assets according to your wishes, upon your death. You should therefore have 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 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.
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Contact us now for free no-obligation initial telephone advice about drafting a Will and a Power of Attorney.
