What Happens When A Business Owner Dies Unexpectedly? (Everything You Need To Know)
When a shareholder or director dies there are a number of issues that arise. These range from the appointment of an Administrator, to dealing with the deceased person’s estate and any liabilities associated with it.
In terms of succession, the death of a shareholder or director triggers a process known as “succession”. This involves the transfer of the shares held by the deceased person to his/her successor(s). If no one else holds any shares, then the deceased person’s spouse automatically becomes the sole owner of those shares.
The next step is to deal with the deceased person’s personal assets. In most cases, the deceased person owns shares in the company; therefore, the company must deal directly with those shares. However, the deceased person may also hold other assets such as real estate, vehicles, jewellery, cash, pensions, etc.
If the deceased person owned shares in another company, then the company must deal with those shares too. For example, if the deceased person had shares in a family trust, then the trustee will need to deal with those shares.
An Executor is appointed to deal with the deceased persons’ estate. They are responsible for managing the deceased person’s assets and settling debts.
A final issue that arises is the winding up of the deceased persons’ affairs. Companies usually wind up the affairs of directors and shareholders who die within 12 months of each other.
What occurs when an investor dies?
Shareholders agreements should include a clause about what happens in the event of the death of a shareholder, says James Taylor, partner at law firm Pinsent Masons. “When a shareholder dies, the agreement should specify whether the shares will pass according the terms of the Will or, if there is no Will, under the intestacy rules,” he explains. “If there is no Will, the shares will go to the surviving shareholders.” If there is a dispute over ownership, it could lead to litigation.
The executors of a deceased person’s estate will usually take control of the company. They will need to make sure that the deceased’s wishes – such as how the shares should be distributed – are carried out. This might involve appointing someone to act as trustee to manage the company while the executors wind up the affairs of the deceased.
A company needs to appoint independent directors to oversee the winding up process. These people will ensure that everything is done properly.
What occurs when a director passes away?
A director serves for life unless he resigns or dies. This is true even if the director did not attend a meeting or vote in a particular year. If a director dies, shareholders must nominate another person to replace him/her. In some cases, it might make sense to keep the deceased director’s name on the company’s documents because many directors are listed on proxy statements and annual reports. However, if the deceased director’s name does not appear on those documents, it could cause confusion among investors about who owns what shares.
What if there is only one shareholder and one director?
In the case of a sole proprietorship, partnership or limited liability partnership, the personal representative can apply to the court to appoint a replacement director. This applies even where there are bespoke articles in place. However, where a company has been incorporated under the Companies Act 2006 since the introduction of the legislation, the personal representative can only appoint a new director where the articles provide for such appointment.
Where a company has been incorporated prior to the introduction of the Companies Acts 2006, the personal representative cannot appoint a new director unless the articles specifically permit him/her to do so.
The personal representative must make his application within six months of being appointed. If he fails to do so, the existing directors remain in office.
What are the solutions?
If your business is struggling, it might be time to ask yourself some hard questions. Here are four things entrepreneurs should consider asking themselves:
1. What am I doing wrong?
2. How do I fix my mistakes?
3. Why aren’t people buying my products/services?
4. Is there anything else I could be doing better?
What about cross option agreements?
Cross option agreements work in the exact same way as regular options, but are granted directly to all shareholders rather than being held by one individual. This allows the company to trade while the deceased shareholder’s assets are settled.
This type of arrangement is often seen in companies where there are many shareholders, or where the ownership structure is complicated. In such cases, it makes sense to give each shareholder equal say in how the company operates.
When drafting a cross option agreement make sure you take into consideration what your Will says about your estate. If you don’t want to leave anything behind, then consider setting up a trust to manage your assets.
A cross option agreement needs to be reviewed regularly to ensure that it still works effectively. You might find that some changes are needed, especially if the company starts making losses.
Frequently Asked Questions
What to do if the deceased has no life insurance?
If you are not sure whether someone who has died had life insurance, check with their local bank, credit card provider or their employer. They are likely to know if they have been paid up to date. If they haven’t been paid, contact the relevant organization to see what steps they are taking to pay out the money. Alternatively, you could ask the deceased’s family for information about their financial situation.
You shouldn’t assume that a death certificate tells you everything you need to know about the deceased’s finances. For example, it doesn’t tell you whether the person who died insured themselves against loss of income. This can mean that you don’t receive benefits.
In addition, there are often legal issues to consider when dealing with the estate of a person who dies without insurance. These include how much responsibility you take over paying debts and taxes. Depending on where you live, you might have to deal with probate court.
There are different ways of organizing a funeral. A formal funeral requires a licensed undertaker and a coffin. Some people opt for cremation rather than burial. If you decide to organize a funeral yourself, you can choose from a number of options. There are many books and websites that give advice on funerals.
Who can administer the deceased’s estate?
If you’ve lost someone, it’s normal to feel sad, confused and even angry about what happens next. You might think that you’ll never see your loved one again, and that there are people who know how to handle things better than you do. But it doesn’t matter whether you’re dealing with a small or large amount of money – you still need help. Here we look at some of the options you have.
The law says that usually a close relative like a husband, wife, son or daughter will have the legal right over the estate of the person they care about. They will take charge of making sure the person’s assets go where they want them to go, and that no debts are left unpaid. If no relatives survive, the state will decide who gets what.
There are three main types of estate: personal, real and mixed. Personal estates include everything owned by the deceased, such as bank accounts, cars, houses and jewellery. Real estates include land and buildings, while mixed estates include both personal and real properties.
You don’t always need to appoint a solicitor to manage your estate. Sometimes, if you trust the person concerned enough, you can ask them to act as executors without needing a lawyer involved.
If you have appointed a solicitor to deal with your affairs, he or she will oversee the distribution of your estate. This could involve selling off part of the property, paying off debts, distributing shares and pensions, and arranging funeral arrangements.
If you haven’t named anyone else to deal with your estate, the state will make decisions about how to distribute your assets.
