The sole director and shareholder company model was introduced in Australia in the 1990s and enabled the valid existence of a company with only one individual who can act as director (or director and secretary) as well as be the only shareholder. But what happens if the sole director and shareholder becomes incapacitated or suddenly dies? How does the company continue to function? There is still a business in existence but may be no-one with the authority to run it.
The death or incapacitation of a sole director and shareholder can bring any business to a standstill. There may be no-one with the authority to operate bank accounts, enter into or enforce agreements, pay company bills and expenses or make decisions and manage the day to day business of the company.
While legislation provides that if a company’s sole director and shareholder dies, the deceased’s ‘personal representative’ (who is typically the executor appointed under a Will) may appoint someone as a director of the company to carry out the business, it does not cater for circumstances where the sole director and shareholder may be incapacitated for a period of time due to illness or where a person passes away without a Will and the deceased ‘personal representative’ needs to be appointed by the Court (a process which can take several months). Both of these scenarios can effectively leave a company paralysed for an extended period of time.
If utilising a sole director and shareholder model company for your business, it is therefore important that a considered business succession plan be put in place to protect the value of the business.
In addition to having a valid Will in place, sole director and shareholder companies should consider implementing a Corporate Power of Attorney which enables a nominated attorney (or attorneys) to effectively stand in the place of the director if the director were unable to act and make decisions for the company. A Corporate Power of Attorney therefore ensures that the business of the company can continue or the business can be sold if the sole director and shareholder were incapacitated.
It is important to understand that a personal Power of Attorney will not permit your attorney to sign documents on your behalf as a director of a company and a distinct Corporate Power of Attorney is required to enable an appointee to act on behalf of the company.
If you have any questions about Corporate Powers of Attorney or would like to discuss a business succession plan or your estate planning generally, please contact us.