Administering The Estate Of The Director Of A Limited Company

April 2024

There are all kinds of factors to consider when you take on the task of winding up an estate. If the person who has died owned a business, you will need to take extra steps to ensure the additional legal obligations this entails have been met.

We’ve previously shared advice on dealing with estates for sole traders and partners in partnership businesses. In this post, we’re covering what you need to know if you’re responsible for the estate of someone who was the director of a limited company.

What is a limited company?

A limited company is a business that’s been set up as a separate legal entity from the person, or people, who own and run it. This is important as it can provide valuable financial protection should the business suffer significant losses.

What happens to a limited company if the director dies?

Because a limited company exists as a separate legal entity from its director or shareholders, this means that it can continue to operate should anything happen to key personnel. The exact logistics of what would happen in such scenarios would depend on the individuals involved in the business and whether any specific contingency plans had been made.

If the limited company had more than one director, the remaining director(s) would continue running the company. Depending on any instructions recorded in the company’s articles of association, they could usually choose to appoint a replacement director if they wished.

In situations where the limited company only had one director but also had shareholders, the shareholders would usually be able to vote to appoint a new director.

The situation would likely be more complicated if the limited company had only one director and no shareholders. In these cases – assuming the director had not left clear instructions in the company articles of association and/or their will – their personal representatives would need to step in and appoint a new director. If the limited company was incorporated after 2009 and had adopted the model articles of association from the Companies Act 2006, they would be able to do this straight away. If the incorporation was prior to 2009 – or if the model articles of association have not been adopted – the personal representatives may need to seek a court order to be able to do this.

Whatever the situation, it will be necessary to inform Companies House of the death of a company director within fourteen days.

What will happen to company bank accounts?

Again, because limited companies operate as a legal entity of their own, any bank accounts belonging to a limited company will not usually be frozen after the death of a director.

If the company has multiple directors, surviving directors should be able to continue to access bank accounts as usual. However, if the limited company had only one director, it may be the case that they were the only person who was authorised to access accounts and make payments.

This is the sort of scenario that would ideally be planned for in the company’s articles of association. If not, it would be down to the personal representatives to appoint a new director in order that they could access the bank accounts.

What if the company has employees?

Not all limited companies have employees beyond the director, but if they do, this can be an issue after a death if no protections have been put in place.

Again, the company’s articles of association should make clear provision for who will take over responsibility for the company should something happen to the director(s).

This is vital not only to ensure the safety of any employee’s jobs, but also to ensure someone will be authorised to action employee wage payments.

What other responsibilities will personal representatives have?

There are various legal obligations for how limited companies must be managed. These obligations remain even after the death of a director. If you are winding up an estate in these circumstances, you will need to ensure they have been met.

How you will do this will depend on what is going to happen to the business.

If the business will continue, whether that’s with the surviving directors or with a newly-appointed replacement, then those directors will be responsible for all company affairs and obligations going forwards, including tax returns and associated liabilities.

It might be that the company is going to be sold. In these cases, the personal representatives will likely need to take on director responsibilities in the short term in order to manage the administration of the sale, along with any tax returns or other obligations that come due during this period.

In other cases, it may be that the personal representatives decide to close down the limited company along with the estate. In these situations, the personal representatives will need to take on director responsibilities in order to have the ability to officially close down the business and ensure that all outstanding liabilities (including debts and tax returns) have been dealt with.

What plans should the directors of limited companies make in advance?

None of us know exactly what’s ahead for us. However, we can all take steps to put plans in place to mitigate against unexpected events.

If you are a director of a limited company, it’s so important to make sure your company’s articles of association address what you would wish to happen in the event of a death.

This should include:

Who would take over from a sole director.
Whether any surviving directors should appoint a replacement.
What would be due to the beneficiaries of a director who died.
Which individuals would be authorised to access bank accounts and authorise payments.
Provisions for any company employees.

In addition to this, we’d also strongly advise directors of a limited company to ensure they have an up-to-date Will that adequately addresses their business interests.

These steps will ensure that your business, along with any employees and beneficiaries, will be protected whatever happens.

At Roche Legal, we have a great deal of expertise in these matters. We’re on hand to help if you’re seeking advice on planning for the future of your limited company. You can also rely on us for support if you are currently in the process of winding up an estate for the director of a limited company.

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