Why it is important for sole company directors/shareholders to have a Will
Do you have a Will?
When a person dies without leaving a Will things can become quite problematic. Dependants (widows, children etc) can be left waiting for extended periods of time, as the estates cannot be wrapped up quickly. As such, the State or Territory Public Trustee will step in to manage the estate unless the Court grants letters of administration to someone else to take control.
However, the complications and distress can have an even greater impact on the people affected when a sole director of a company dies without a Will. Quite often the company will be left without anyone officially authorised to manage the company straight away.
Usually if a company director dies without leaving a Will the surviving directors continue running the business and may even decide to appoint a new director through the members (shareholders) of the company. This is similar to when a sole shareholder passes away, the directors can continue to manage the shares until the time when the beneficiaries of the Will have the shares transferred to them.
The risk of uncertainty is far greater when the sole director is also the sole shareholder.
The Corporations Act 2001 provides that in the event of the death of a single director/member of a proprietary company, the person appointed to manage the deceased’s estate may assign a new director to the company. Rights, powers, and duties of the deceased director are passed on to the new director, who is responsible for keeping the company running until the beneficiaries have the shares passed onto them, at this point they can also select a new company director if they wish. The executor is usually and most efficiently selected by means of a valid Will.
When this is not possible and no Will exists, a near relative or close person would have to apply to the local Supreme Court for letters of administration to manage the estate and this can sometimes take months to happen. However, in the absence of obvious people to deal with the estate, the Public Trustee may begin to administer the deceased’s estate but this process can also take a lengthy period of time.
In the time gap where there are no directors, the company may be completely unable to function. This is due to the fact that there is no one authorised to make management decisions or act for the company. Difficulties also arise while dealing with banks, this is because they may be unwilling to accept instructions with regard to a company’s trading account if they are not entirely satisfied that the person is authorised to act for it. Also, staff and suppliers may not be able to be paid, this can rapidly destroy a company’s reputation and reduce the value of the company to the beneficiaries of the estate.
If a person is interested in purchasing the company they may not be able to do so quickly since there will be no recognised share owner who can approve their transfer until an administrator has been appointed and the estate has been settled. Even if the concluding decision is to wrap up the company so all beneficiaries can receive payment, a delay of possibly several months can result in the depreciation of the company’s value, thus generating a significantly lower amount of money than it would have if it had been able to continue operating in the interim period.
Making a Will valid
A valid Will must be signed by the person making the Will (the testator/testatrix). This signature must be made in the presence of two or more witnesses who are not beneficiaries under the Will and who then sign the Will in the presence of the person making the Will.
Thus, it is highly recommended that if you are a sole shareholder/director of a company you should have a Will in which you make provision for who is the beneficiary or beneficiaries of your shares.
Here at The Quinn Group we can help you with drafting, witnessing and executing your Will. For this or any other queries relating to Wills or legal issues submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166.