For a Consultant to assist you in drafting a FREE (Last Will and Testament) please book an appointment using the following link (For South African Clients only)
www.swiftreg.co.za/Swiftreg/O...
The loss of a loved one is not only very distressing it can also have a material impact on whether the business can continue trading or not. For example, if there is no succession plan in place, the worst case scenario is that the business will be liquidated and the assets forfeited to the government - which I’m sure no-one wants. To safeguard against this a little bit of planning and proactive decision making is required from you.
To be clear, this video covers private companies specifically but please do be aware that there are a multitude of other formal business entities such as NPC’s Trusts, Close Corporations as well as informal, such as such as partnerships and sole proprietors. Each one of these business types will have specific legal procedures and requirements to manage the death of a director, trustee, member or partner but the broad principles remain similar to that of a company.
When any individual dies, a number of actions are required to wind up the person’s estate. Within 14 days of the death of the individual an interested person needs to report the estate to the Masters office in the jurisdiction where the individual lived. If the value of the Estate exceeds R250,000 then a letter of curatorship must be issued, and the Administration of Estate Act followed to wind up the estate. For estates with a total value below R250,000 only a letter of authority is required.
If the will of the deceased does not name an Executor of their Estate, the court will appoint one. To ensure the Executor of your choice is appointed it is essential that your wills are up to date which includes the nomination of the Executor of your choice. I have left a link in the description should you need assistance in drafting a Free Will. Please be aware that in South Africa, Power of Attorneys lapse on death and is therefore not a viable nor legal option.
Since this video is about how companies manage succession with deceased directors we’ll get right into the detail.
For this purpose, there are 3 possible scenarios for the company’s Directors and Shareholders namely: companies with multiple directors; companies with one director and multiple shareholders or companies with one director who is also the sole shareholder.
In the first scenario, - multiple Directors - the day to day running of the business simply continues and the remaining directors pick up the duties of the deceased director. If the deceased Director is also a shareholder, the shares fall into the estate and will be paid out according to the wishes set out in the will. Be warned, getting a fair price for your shares in a private company can be a tricky business. For example, the company may not have the funds available to buy the deceased shares. To cover this risk many companies take out key-man insurance policies to fund the buyout. Another issue might be that the remaining shareholders may not want to pay the full asking price especially if the process of valuing the shares were not agreed upon upfront. A well drafted shareholders agreement should resolve such a dispute as it will set out the process of valuing the shares in such an event.
The remaining directors would need to update the directors register by removing the deceased from the directors register on the CIPC database. This requires a death certificate, letter of curatorship, ID and the signature of the Executor as well as the ID of the deceased.
Assuming the standard MOI is used for the company then the remaining directors can appoint a new director should they so wish.
In the 2nd scenario the company has only one director but multiple shareholders. Since a company is required by law to have a minimum of one director at all times a new director must be appointed as soon as possible to ensure the continuity of the business. The shareholders need to appoint a new director which can be done using an ordinary resolution, this requires more than 50% of the shareholders to be in agreement to appoint the new director.
sole shareholder which is the most precarious of all the scenarios. Upon the death of the sole director the personal bank accounts are immediately frozen while the business bank account becomes restricted, effectively only allowing deposits. This means that employees won’t get paid and bills won’t be settled which is all very stressful. To make matters worse if there is no will and no relatives the company will be liquidated, and the assets forfeit to the state! A scenario best avoided.
The problems are compounded by the fact that the Masters Office can take months to appoint an Executor during which time business can flounder which could lead to financial difficulties and destruction of the value of the company....