What is required in estate planning for directors of a private business? – Company / Commercial law

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If you’re a director of a private business, having a well-thought-out estate plan is crucial.

Be a director

Private companies are commonly used for:

  • run a business
  • invest in assets
  • trustee of a family or unit trust

The business may have a single director or, in typical mom / dad arrangements, can include both as directors.

The directors are generally responsible for the management of the company and can exercise all of its powers. Without an administrator, a company violates the Corporations Act 2001 (Cth) and this can be a significant determinant of asset value if it is unable to function properly.

Can I pass on the role of director?

In most constitutions, the role of director is usually
automatically released in the event of incapacity, bankruptcy or death. Inevitably, this means there will be situations where a company does not have a manager – so planning is essential.

The role of director is a personal responsibility and not a property right. The role cannot be passed on or passed on to someone else, which is a common misconception. Rather, it is a position to which a person is appointed, so that a director must be appointed in accordance with the constitution of the company.

To appoint a new director, most standard constitutions require:

  1. The directors appoint a new director; Where
  2. An ordinary resolution, being a vote of Followingmore than 50% of shareholders

Death of the sole director / shareholder

For a single director / shareholder company, the process is simpler, but careful planning is still required.

In this scenario, the will can be used to offer shares to the person who controls the business. The new shareholder then votes on the shares to be appointed director.

The same applies in the event of loss of capacity of a single director / shareholder. The proxy of a shareholder can vote on the shares to appoint a new director.

Article 201F of the Corporations Act 2001 (Cth) allows the personal representative an administrator (being the executor if the administrator is deceased, or a power of attorney in the event of loss of capacity) to appoint an administrator (this power can be used in the event that the shares have not been given or that the executor holds the shares to ensure that a company does not find itself in a position where there is no director).

Having a will is crucial because it clearly confirms the personal representative of an estate (and avoids the delay that may arise when requesting the granting of letters of administration to confirm the personal representative). Careful consideration should be given to who receives shares under a will, who is the executor, and who is a shareholder’s proxy.

Death in the company where more than one director / shareholder

The process can get a bit more complicated in a company where there is more than one director / shareholder.

In typical mom / dad arrangements, each will leave their actions to the other and they ultimately control the business, so there is usually no problem. However, in other scenarios, it will largely depend on the existence of a controlling shareholder and the dynamics between the parties.

For example, in the event of the death or incapacity of a shareholder (holding 50% or less of the shares), the shareholder or executor or proxy will not have sufficient voting power to appoint a director. As above, most current constitutions require a director (i.e. an existing director) or an ordinary resolution (representing more than 50% of the votes) to appoint a new director. In this scenario, unless the other director or shareholder accepts the nomination, representation at the director level may be lost.

Other factors may also have an impact, such as a shareholders’ agreement between the parties or changes to the constitution.

As this is a complex area, we strongly recommend that you seek the advice of an experienced lawyer to discuss options for planning for the loss of capacity or death of a director, as this can change significantly depending on the circumstances.

Corporate power of attorney

A corporate power of attorney can be used to ensure that a business continues to function properly in the absence of an administrator. It appoints someone you trust to act in the best interests of the company and its shareholders with the appropriate financial knowledge and skills, and we recommend that this be carefully considered in any estate plan.

As an alternative, the appointment of an alternate director means that in the event of the unavailability or incapacity of a director, there is a person legally authorized to act for the company as a director.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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