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What happens when a Company is left without officers?

A private company limited by shares is a legal entity that has no physical presence. It can only act through its directors and at least one of them must be a natural person. So what happens when the sole director of a company dies? How will the company continue to trade if there is no officer to act on its behalf?

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Well, someone needs to appoint a director and the only persons left with an interest and power to do so are the shareholders. Model Articles and Table A 1985 articles have provisions to allow the shareholders, with an ordinary resolution, to appoint as a director a person who is willing to act and permitted by law to do so. If the company has bespoke articles of association it is very common to contain such provisions and they should be checked. If the articles of association make no provision for the appointment of directors, then the shareholders have an inherent power to appoint directors by ordinary resolution (Worcester Corsetry Ltd v Witting [1936] Ch 640).

That is all good, but what happens if the deceased sole director was also the sole shareholder of the company? Who would appoint a new director then?

On the death of a shareholder (if he is the sole registered holder of the shares) the legal title of his shares will pass automatically under a process known as transmission to his personal representatives (PR). Transmission will not, however, make the PRs members of the company. The PRs can elect to be registered themselves as members or transfer the shares to another person. Whatever the PRs elect to do the re-registration of the deceased’s shares cannot be completed when there are no officers with power to accept evidence of the transmission or to approve the transfer.

Model Article 17(2) gives the PRs of the last shareholder to have died the right (but not the obligation) to appoint a director by giving notice in writing to the company. So the best case scenario would be for the company to have adopted the Model Articles or made similar provisions in its bespoke articles of association.

But if the Company has adopted unmodified Table A 1985 articles then things get complicated as Table A 1985 articles do not include similar provisions. In these circumstances it seems that the only available route would be to apply to the court for a suitable order to rectify the registry of members and convene a general meeting to appoint a director.

An obvious and far less expensive way to avoid these problems would be to appoint at least two directors! Also, the articles of association could be amended to include appropriate provisions. Whatever you decide to do, if you were to find yourself in that situation or you are worried you might, our experienced corporate commercial lawyers will help you deal with it in a timely and cost effective way.

For further guidance on this topic, please do not hesitate to contact our Corporate & Commercial team on 0800 042 0700 or email enquiries@lindermyers.co.uk

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