It was Benjamin Franklin who observed that in this world nothing can be said to be certain, except death and taxes. With that cheerful thought in mind, it is worth noting that both of these can have a dramatic effect on the prospects and plans of a company.

Let’s take a brief look at the first of these, and how directors and shareholders can – and indeed should – consider planning for this. The aim for any company should be to able to continue trading even while handing over control. Certainly to avoid a situation where the company is left with no directors or shareholders. Or even both.

If that last scenario seems extreme; I have seen this happen. Two companies, trading profitably as a group, with bills to be paid and orders to be met on Monday, were cast into disarray by the sudden death of the holding company’s sole director and shareholder. The fact that the constitutions of both companies were out-dated, in one case being governed by the Table A of 1929, only complicated the matter.

The end result was a situation where the lawyers of the deceased, as his executors, had to step in. Despite certain misgivings, they had to appoint themselves as directors of the companies, and engage with the family members to discover who, if anyone, was willing and able to take on the company management.

What can be done to avoid such a situation?

The ideal starting point would be to ensure that the company’s constitution reflects current law. It is always good practice to review the constitution on a regular basis. Firstly to ensure that it meets the needs of the company, but secondly to guard against situations such as this.

In the latter context, the areas to consider would be the transmission of shares and the appointment of directors by executors or surviving shareholders, but considering that the Model Articles address those points, most newer companies should already have a functional system in place. Any older companies, which rely on Table A, can simply update their constitution to meet this standard.

That being the case, while that starting point seems obvious, ultimately, it is common sense and should be done by the directors as a matter of course.

In our example, the primary issue wasn’t the age of the constitutions but simply the fact that the deceased had been the sole director and shareholder of the holding company, and so there was virtually no one who had authority to step in. It was only the fact that the company also had a secretary that enabled the transmission of the deceased’s shares to the executors to be registered appropriately, and so allow them to act as shareholders of the company.

So while the relaxation of company administration to allow sole director/member companies with optional secretaries reduces the administrative burden on companies and has been widely welcomed, it’s clear this isn’t automatically a good thing. As we’ve seen, without the secretary of the holding company, both companies would have been in dire straits. This could have been avoided with either a second director or another shareholder holding even just one share.

It is also apparent that having a plan that involves other people, especially for a scenario in which the company might be missing its most important person, is really important. The question to be asked is, “Who else can help?”

The responsibility of every sole director, and particularly those who are also the sole member, to have an answer to this to ensure the continuity or even the conclusion of their company.

If you would like more information about how succession planning would be useful for your company, in virtually any situation, please do get in touch.