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Why a Will is crucial for a Sole Director and Shareholder

Do you operate a small business in the form of a sole director/shareholder company? Are you responsible for the overall operation of the company, including generating and operating the business, raising purchase orders and invoices, settling accounts and keeping proper financial records?

If you answered yes to the above questions, then having a Will is crucial for you. Without a Will, in the event of your passing, your loved ones will be unable to step into your shoes as the sole director to keep the business operating. This could result in a devaluation of the business, loss of customers and income and unnecessary interest accruing on loans.

What happens in the event of the death of a sole director/shareholder?

In the case of a sole director company, with multiple shareholders, if the sole director dies, then the shareholders are entitled to appoint another person to act as director.

In the case of a company with one shareholder and multiple directors, then if one of the directors dies, the surviving directors may take over the operation of the business.

However, in the case of a sole director/shareholder company, circumstances are more complicated, as there is no one to continue the operation of the business if the sole director/shareholder dies without a Will.

The law does provide some assistance in this case. Under section 201F(2) of the Corporations Act 2001 (Cth) if a company’s sole director and shareholder dies, then the deceased’s personal representative may appoint a person as the director of the company. However, this does not necessarily solve the problem.

Who is the deceased’s personal representative, and why does this create a risk?

It is important to remember that in order to be a personal representative of the deceased’s estate, you must have been granted letters of administration from the Court.

A grant of letters of administration is the Court order made to the legal representative of an estate where the deceased died without a Will.

This means that before anyone can step into your shoes as a director of the company to operate the business, they must go through the process of applying to the Court for a grant of letters of administration.

In standard cases, it can take up to 3 months following the deceased’s death to have letters of administration granted. This does not take into account situations where the estate is in dispute, and the making of the grant is delayed. In these types of situations, significant legal fees may be incurred to have someone appointed as the personal representative on a limited basis to operate the business.

What are the risks of not having a Will if you are a sole director/shareholder?

The risks of not having a Will if you are a sole director/shareholder are as follows:

  1. In effect, until a grant of letters of administration is made, no one is able to operate the business legally.
  2. If there is a dispute, and the granting of letters of administration is delayed, then your estate will have to incur significant legal fees having someone appointed on a limited basis to operate the business until such time as the dispute is resolved.
  3. As a result of the delay between your passing and letters of administration being granted, there may be nervous customers, unpaid employees and accounts, loans accruing unnecessary interest and a lack of invoicing. All this may see a significant devaluation in the business.

What are some things you should consider if you are a sole director/shareholder?

In circumstances where you are the sole director/shareholder of a company, it is crucial for you to have:

  1. An Enduring Power of Attorney so that if you are incapacitated and unable to act as director of the company, your attorney may step into your shoes as a shareholder to appoint another director.
  2. A Will so that in the event of your death, your executor does not have to wait until a grant of letters of administration is made by the Court to step into your shoes as director.

Furthermore, you may wish to consider appointing an alternate director to the company so that if you are unavailable or incapacitated there is someone legally authorised to act as director.

If you are the sole director and shareholder of a company, and you do not have a Will, please do not hesitate to contact us for advice in relation to your estate planning.

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Chloe Kopilovic

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Chloe Kopilovic

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