The role of a company director
Companies are the most common structure for businesses in Australia with over a million currently in operation. As a business owner you may serve as the sole director and sole shareholder of your company, overseeing various aspects of your business operations, family trusts, and self-managed super funds. Under Australian law, every company must have at least one director; the director is responsible for the company’s affairs, and without one, the company risks breaching legal requirements and facing operational challenges. So if you’re the sole director of your company and something happens to you, who will fulfill your role as director?
Succession planning for company directors
The role of a director can’t simply be transferred to someone else without valid legal reason or documentation. Here are several succession strategies which can be used to protect you and your company:
- Getting a Will: While the director’s role cannot be directly bequeathed, you can designate the transfer of your shares in the company through your Will. This allows the appointed beneficiary to assume control of the company by voting to appoint themselves as director. Without a Will, the process becomes significantly delayed, hindering the company’s operations during the interim period.
- Getting a Corporate Power of Attorney: Similar to a personal power of attorney, a corporate power of attorney empowers an individual or entity to act on behalf of the company. This ensures continuity in business management if the sole director becomes incapacitated or passes away.
Why do directors need a Corporate Power of Attorney?
The unexpected happens and company directors are not an exception to this rule. If you are the sole director of a company and an unexpected situation like an accident, illness, or even death happens, there is no officeholder left in the company to run it. By appointing a trusted attorney to step in, directors can keep the company running smoothly even in challenging circumstances.
A Corporate Power of Attorney can either give the attorney wide-ranging powers or restrict them to specific tasks. If it’s broad, the attorney can do anything on behalf of the company without restriction. If it’s limited, then the attorney can only do what’s specified in the document, whether those certain tasks or for a certain period of time.
What happens if a director dies without a will?
When a person passes away without leaving a will it can create complications and delays in the administration of their estate as State and Territory intestacy laws kick in to deal with the estate. Loved ones are often left with voluminous paperwork and legal requirements to deal with for an extended period before the estate can be settled. Some loved ones can even miss out on receiving benefit from the estate altogether, causing additional distress during an already difficult time.
For sole directors of a company, the absence of a will can have even more significant implications. Without legal documents in place, the company may be left without anyone authorised to manage its affairs which often disrupts or stops operations, causes uncertainty and creates hardship for business partners, family, employees, suppliers, and stakeholders.
Similarly, if the sole shareholder of a company dies without a will, the process of transferring shares to beneficiaries can be delayed.
Why do directors need a will?
Having a valid will in place ensures that your wishes are carried out and that your company, business and loved ones are protected. If you are a sole director and sole shareholder and you pass away, who has the legal authority to take control of the many balls that you juggle every day for your company? While section 201F of the Corporations Act 2001 allows for the appointment of a new director in the event of the death of a sole director/sole shareholder company, this process is simplified dramatically through a valid will.
By appointing an executor in your will you can ensure that someone you trust and that is capable is authorised to manage your personal affairs and your company’s affairs in the event of your passing. This helps to avoid delays in decision-making and allows the company to continue operating smoothly during the transition period.
What makes a will valid in Australia?
The general legal basics:
- Wills must be in writing.
- Wills must be signed by the willmaker.
- Wills must be witnessed by 2 persons present there at the same time.
- Wills must be made by a person over 18 years of age.
While these are the defaults, wills should also be dated, should appoint an executor and should be clear in gifting of assets or estate. Ideally, a will should also provide some authorities and powers to the executor so they can get the job done, particularly if you are running a business.
How much do estate planning documents cost?
Depending on the level of experience, how competitive they are and their location, a law firm may charge anywhere from $300-ish upward for a will. Our blackboard prices for wills, corporate powers of attorney and other estate planning documents can be found here. It’s always a good idea to deal with a lawyer who is an estate planning expert as the laws are more complex than you may think. Not getting the will right and/or having it contested will more than likely cost well in excess of the price of getting a will done. Not to mention the peace of mind you are investing in for your loved ones.
How to protect your company’s future
If you are the sole director and sole shareholder of a company, it’s crucial to have a valid will and corporate power of attorney in place. By making provisions for the transfer of shares and appointing a trusted person to manage your affairs and the company’s affairs, you can safeguard its future and provide clarity for your loved ones during a challenging time.
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