Death of a director & shareholder of a private limited company The death of a director or shareholder of a private limited company could lead to problems if they die without having a will in place. When a director dies, it is important to know what happens if and when a shareholder dies without a will and what to do in the event of the death of a shareholder or director. What are the basics of the death of a director and shareholder of a private limited company? There are different scenarios to consider when a private limited company director dies. If the company has more than one director, the company can still run as usual. The remaining directors will divide the deceased shareholder’s responsibilities between them. His or her personal representatives have a general right to be entered into the limited company’s register of members. When determining what happens to the shares of a deceased shareholder, it is important to check the most recent shareholders’ agreement and articles of association. If there is no specific provision relating to the death of a shareholder, the shares will pass in accordance with the deceased’s will, or if there is no will, under the intestacy rules. The risk of not including any specific provisions of the shareholder’s agreement is that family members with no real knowledge of the limited company or its operations may be required to make business decisions with significant consequences. The beneficiaries’ interests may not align with those of the other shareholders and directors. Another problem can arise if the new shareholders do not understand their responsibilities or do not engage with the company. This could mean that no decisions in relation to the business can be made because the required percentage for board or shareholder decisions cannot be reached without their involvement. If the deceased director is the sole director, further issues can arise. If the deceased is the company’s sole director, but there are other shareholders, the surviving shareholders can hold a meeting to appoint a new company director. How to deal with the death The unexpected death of a sole director and shareholder of a private limited company can bring a business to a standstill and put huge pressure on the deceased’s personal representatives. All private limited companies are owned by shareholders but are usually managed by directors daily. The shareholders are typically only involved in the decision-making process where required to do so by law. In some cases, a single individual is the director and shareholder of a private limited company. The position is straightforward for companies that have adopted the model articles for private companies limited by shares. Where a sole director/shareholder has died, the deceased’s personal representatives have the right under Article 17(2) of the model articles to appoint a new director by notice in writing. Once the new director has been appointed, any transfer of the deceased’s shares to and from their personal representatives can be formally registered by that director in the company’s registers, and the business can continue to trade. Protecting a private limited company from the potential chaos caused by the death of its director/shareholder can be achieved by making the relevant modifications to the company’s articles of association. This may not be the perfect solution. There may be a significant period of time between the death of a sole director/shareholder and the formal appointment of the personal representatives. It is advisable to incorporate appropriate alternative director provisions into a company’s articles of association. If the director dies and there are surviving directors, the remaining directors can run the company if the articles of association allow this. Normally, only existing directors and shareholders can appoint new directors, approve the allotment and transfer of shares, and add new shareholders to the company’s register of members. Directors are often the only persons permitted to authorise payments to employees, suppliers and creditors. If the sole director/shareholder dies, there is no one to exercise these powers and authorise essential payments. The options depend on the terms outlined in the company’s articles. It is crucial that appropriate provisions are clearly set out in the private limited company’s articles of association. Such as the right of personal representatives to appoint a new director upon the death of a sole director and shareholder. Many companies continue to operate without adequate provisions in place. It is important to review a company’s articles regularly and to update them on the evolving needs of the business. Must I inform Companies House? By law, a company must tell Companies House about changes to directors’ details within 14 days. This includes when a person is no longer a director of a private limited company because they have died. This is done by notifying the Companies House using Form TM01, which can be filled in online or by post. The company’s statutory register of directors should also be updated immediately, stating the date on which the deceased stopped being a director.