Why a Will is Crucial for the Sole Director and Shareholder

If you operate a small company, writing a will should top your priority list. Small business owners who die without a will inadvertently create problems for their loved ones who want to assume control of the business after their demise. When this happens, the business can nosedive and lose customers overnight.

What Happens When the Sole Director of a Company Dies? 

When the sole director of a company dies, the shareholders of the firm can appoint a new director. If, however, the company has a single shareholder and multiple directors, the surviving directors are entitled to take charge.

If a company has a sole director and shareholder, and one of them passes away, a catch-22 situation can arise. In most cases, the voting rights of their shares are suspended after the shareholder’s death, unless their personal representative (executors, if the person has a will, or administrators if the person passed away without a will) transfers the person’s share to the new owner.

The Importance of Writing a Will if You Are a Sole Director/Shareholder

  • In the absence of a will, no one would be allowed to operate the business, until the court issues a grant of letters of administration
  • In case there is a legal dispute, and the granting of the letters of administration is delayed, the estate will have to bear the expense of appointing a person to operate the business until the dispute is resolved
  • If the granting of the letters of administration gets delayed, customers and other stakeholders such as employees and suppliers can get jittery and start losing faith in the business. Loans will accrue unnecessary interest, resulting in a significant devaluation of the business

Some Important Things That Every Sole Director/Shareholder Must Consider

The only certain thing about death is that it is uncertain. While it is important to have a positive attitude, sole directors/shareholders must be prepared for the worst. They must take necessary steps during their lifetime to ensure the continuous operation of their business in the event of their sudden death. It is crucial for sole directors/shareholders to:

  • Write a power of attorney that allows their legal representative to appoint a new director if they have a physical disability or are diagnosed with a mental deficiency that prevents them from performing their duties as the director of the company
  • Write a will which allows their executor to immediately step into their shoes as the director of the company in the event of their death

A sole director/shareholder must also seriously consider appointing an alternate director who can assume the control of the company if they pass away suddenly or are no longer able to perform their roles as the director of the company.

Are you a sole director and do not have a will? Don’t worry. Johnston & Associates Law is here to help. Every professional in our team is a subject matter expert. Our track record speaks for itself. We take the guesswork out of writing a will. To talk to one of our estate planning attorneys in Santa Rosa, call us at 707-545-6542.