The company carries on existing, but nobody can run it. There’s no director to make decisions, sign contracts, pay staff or operate the bank account, and the executors (who inherit the shares through the estate) can’t vote those shares until they’re registered as members, which normally needs a director to do it. Whether that’s a short administrative job or a court application depends almost entirely on which articles of association the company has.
Most people assume the executors just step into the owner’s shoes. For the shares, eventually, they do. For the running of the company, they don’t, and the gap between those two things is where the trouble starts. Where there are other shareholders or directors, the position is different and usually easier; I’ve written separately about what happens when a shareholder of a company dies.
The company doesn’t die with its owner
A company is a separate legal person, so the death of its only shareholder and director doesn’t end it. The shares form part of the estate and pass to the executors (or administrators, if there’s no will), who become what the articles call “transmittees”.
Under the model articles, a transmittee who produces proper evidence of entitlement can choose either to be registered as the holder of the shares or to have them transferred to someone else. Until that happens, article 27(3) says transmittees can’t attend or vote at a general meeting or agree to a written resolution in respect of those shares. So the executors own the shares in substance but can’t use them to appoint a director.
And the people who normally register a new shareholder are the directors. There aren’t any.
If the company has the model articles
Companies incorporated from 1 October 2009 very often adopted the model articles, either unchanged or lightly amended. Those articles contain a provision written for exactly this situation. Article 17(2) says that where, as a result of death, the company has no shareholders and no directors, the personal representatives of the last shareholder to die can appoint a director by notice in writing.
That breaks the loop. The executors appoint a director (it can be one of them), the new director registers the executors as shareholders or transfers the shares to whoever is entitled under the will, and the filings are made at Companies House. In practice the executors will usually need the grant of probate first, because the company, the bank and Companies House will all want to see who has authority. It’s still a paperwork exercise rather than a legal problem.
It’s worth checking the actual articles rather than assuming, because some companies have bespoke articles with their own version of this provision, and some have amended the model articles in ways that remove it.
If the company is older
Companies incorporated before October 2009 were usually set up with Table A articles. As far as I’m aware, Table A doesn’t contain an equivalent of article 17(2), and neither do many older bespoke articles, unless the company has updated them since.
Without it, the usual route is an application to court under section 125 of the Companies Act 2006 to rectify the register of members, so that the executors are entered as shareholders. Once they’re members, they can pass a resolution appointing a director. It works, but it involves a court application, usually with counsel, and it takes time and money.
I’m acting for the executors on a matter at the moment where the owner had several companies. One of them had articles that let the personal representatives appoint a director directly, and the executors could deal with it in a few days. The others didn’t, and counsel’s estimate for the court applications was around £3,000 plus VAT per company before anyone had worked out whether those companies were worth saving. The only real difference between the companies was the wording of their articles.
Is it worth it?
Not always, and that’s a legitimate conclusion to reach. I’m not in favour of spending £30,000 to recover £20,000.
If the company has little or no value, the executors might decide to let it be struck off. Companies House can strike off a company it believes isn’t carrying on business, usually after accounts and confirmation statements stop being filed (section 1000). The executors can’t apply for voluntary strike-off themselves, because an application under section 1003 has to be made by the company, which in practice means its directors. The catch with strike-off is that anything the company still owns when it’s dissolved, including cash in the bank, passes to the Crown as bona vacantia under section 1012. If there’s money in the account, letting it go by default may be the expensive option.
If there are debts, or assets that need realising properly, liquidation may be the better route, and that’s a conversation for an insolvency practitioner and my colleagues on the insolvency side. If the business is worth something as a going concern, the executors will want to get a director in place quickly and then decide whether to keep it, sell it or wind it down in an orderly way.
Meanwhile, the business is stuck
For a company that’s still trading, the practical problems arrive within days. The bank will usually freeze the account when it’s told the only signatory has died. Staff still need paying, suppliers still want their money, customers still expect work to be done and insurance still needs renewing. Nobody has authority to sign anything on the company’s behalf.
This is where people who’ve been keeping things going informally (a long-serving manager, a friend of the family) can end up in an awkward position, doing things for a company they have no formal role in. It’s usually well meant, but it’s worth putting on a proper footing as soon as a director is in place.
Sorting it out while you’re alive
If you’re the only shareholder and director of your company, most of this can be avoided in an afternoon.
Check your articles. If they don’t have something like article 17(2), consider adopting new articles that do; it’s a special resolution and a filing at Companies House, which I deal with regularly as part of general company law work. Think about appointing a second director, even if it’s someone who only steps in when needed, while bearing in mind that directors take on real duties and liabilities and shouldn’t be appointed casually. Make sure your will deals with the shares and names executors who can cope with owning a business, or at least know who to call. A lasting power of attorney can help with your shares if you lose capacity, but an attorney can’t simply act as a director in your place, so it isn’t a substitute for having another director. And if you have co-owners, a shareholders’ agreement can set out what happens to a shareholder’s shares on death, often alongside a cross-option agreement and the insurance to fund it, which saves everyone a great deal of guesswork.
Wills and powers of attorney are for private client lawyers, and I’d refer that part to colleagues at Nexa. The company side is the bit I deal with.
I act for business owners and, where an owner has died, for executors dealing with the companies they’ve inherited. Get in touch if you need some help.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation.
