BUSINESS OWNERS AND WILLS
Updated: Jan 7, 2021
Why do business owners, sole company directors/shareholders need protection?
As business owners, we often neglect putting our own house in order.
You know what I mean; we are so busy working at our trade and our business we often skip some of the things that matter that will protect our business in the event of an unexpected event.
Did you know for example that if you pass without a Will:-
Uncertainty prevails, and difficulties can arise.
Long delays can occur with the disposal of and the distribution of the Estate, particularly the business
Dependents (widows, children, etc) can be left waiting lengthy periods for much needed money.
When a sole director of a company dies without leaving a will the complications and distress can have an even greater impact.
The death will usually leave the company without any person properly authorised to immediately manage the company.
Ordinarily, if a director of a company dies, the surviving directors can continue to manage the company
If the sole shareholder of a company dies, the directors, if there are any others, can continue to manage it until the beneficiaries under the will have the shares transferred to them.
Where the sole director is also the sole shareholder, however, the risk of uncertainty is much greater.
Under legislation in the event of the death of a single member/director of a proprietary company, the executor or other personal representative appointed to administer the deceased’s estate may appoint a new director to the company.
The new director has all the powers, rights and duties of the deceased director and can keep the company running until shares are transferred to beneficiaries who may then appoint new directors if they wish.
The executor is normally and most efficiently appointed by means of a valid Will. Where there is no will, however, uncertainty prevails:
A near relative, if available and capable, would have to apply to the local Supreme Court for letters of administration to manage the estate
This could take some time- possibly weeks if not months.
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 authorised to make management decisions or act for the company, it may be unable to trade.
Banks and other financial institutions 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.
Staff and suppliers may not be able to be paid, which will quickly have a deteriorating effect on the business
The reputation and value of the company could be drastically reduced for the beneficiaries of the estate
If 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 administrator 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 is likely to 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 period or be sold immediately on the death of the owner.
If you are a sole shareholder/director of a company, you should have a will and, it is recommended that in this will you make provision for who is the beneficiary or beneficiaries of your shares.
Did you know your company is considered a separate legal entity from yourself and is capable of holding property in its own right? As a result, when you pass, property that is owned by your company is not passed under your will automatically.
If your company owns an office, for example, or office furniture and perhaps a company vehicle, your company is the owner of that property, not you personally, even if you are the sole director and sole shareholder of your company. Both your will and your company constitution affect the distribution of your assets according to your wishes, upon your death. You should, therefore, make a will as well as having your company constitution reviewed to ensure it meets your succession planning needs.
Did you know too? If you are a business owner, director or partner and you become temporarily or permanently incapacitated and you do not have an Enduring Power of Attorney or a General Power of Attorney in place this can place the business in a very precarious position.
Who can sign documents on your behalf? Who can make business decisions on your behalf? Who can discuss your financial affairs with your bank or creditors?
If you do not have an appointed attorney to act for you if you are incapacitated the business may cease, over a period, to be able to trade.
Willcraft specialise in helping business owners to ensure the right protection is in place for both their family and personal needs as well as those of the business, its clients and where appropriate its directors and shareholders.
For further information contact our team on (08) 9368 1337
Information provided by Willcraft Estate Planning Pty Ltd, An Incorporated Legal Practice.