A key part of succession planning is to ensure that you maintain control of any companies you are a Director of if you are incapacitated in any way, or if you die.
For example, if you are the sole director of any company, to ensure your companies can continue to operate you need to put documents into place NOW to nominate your successor director so your family can maintain control of these companies.
If you are a director in a multi-director company, again, you need to put documents into place NOW so that your family “vote” will ensure that the other directors can’t make decisions that are prejudiced against your family.
Why should you have a Successor Director?
The appointment of a successor director to a business is essential for the seamless succession to a director’s role in many family and private companies.
In most company constitutions, the shareholders appoint the directors. However, in many family and private companies there are either two directors who hold minimal shares each. Thus, if either director loses legal capacity or dies, the remaining director/s of the company will effectively control the ongoing affairs of the company and decide who will be paid the deceased’s death benefit if the company acts as trustee to a Self-Managed Support Fund. In this case, as each spouse has a 50% vote, a director who has lost capacity or died, will generally not have any legal right to have someone represent their interests.
Invigor8 Accountants and Advisors have a solution that will enable a director to nominate someone who takes their role in the event they are unable to hold a directorship. The appointment of a successor director is relevant if there are separate beneficiaries who will ultimately benefit upon the death of the director then having someone represent their interests if they lose their capacity is advisable to ensure their benefits are dealt with in the most appropriate manner.
Importance of Sole Company Directors or Shareholders having a Will
“Where there is no will, a spouse or near relative or another person would have to apply to the local Supreme Court for letters of administration to manage the estate and this could take some time – possibly months. Alternatively, in the absence of any immediate relatives or other obvious people to deal with the estate, the Public Trustee may step in and administer the deceased estate but this process can also take months.
During that period when there is no director, the company may be completely unable to operate. With no one properly authorized to make management decisions or act for the company, it may be unable to trade. Banks and other financial institutions, in particular, may be unwilling to accept instructions in relation to a company’s trading account if they are not satisfied there is someone properly authorised to act for it.
Equally, staff and suppliers may not be able to be paid, which can quickly have a disastrous effect on the reputation and value of the company to the beneficiaries of the estate.
If, on the other hand, a person is willing to purchase the company, they may not be able to do so quickly because there will be no recognised owner of the shares who can authorise their transfer until the testator has been appointed and settled the estate. Even if the final decision is taken to wind up the company so all beneficiaries can be paid out, the delay of possibly several months may mean the value of the company will be much less than it might otherwise have been if it had been able to continue operating in the interim
We ensure the protection of control over the assets in all your companies and your trusts which have trustees companies.
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