Reserve Directors

Reserve Directors

Reserve Directors

Wednesday, 29 July 2009 14:23

Normally, if a director dies, then the surviving directors run the company. But what happens if the company is operated by a sole director?

Many SMEs are run by a sole director, who is also the sole shareholder. When the sole director/shareholder dies, not only does the family have to deal with the emotion and stress of the death, but also the complications of having to try to run a business where no one has authority to take charge.

In an increasingly competitive world, a prosperous business can fail very quickly, because delays in decision making.

What is not widely known is that a reserve director may be nominated in the first place to avoid the above situation.

The Companies Ordinance provides that a company with one director/shareholder may nominate a person to be a reserve director.

If a reserve director is appointed, then in the event of the death of that sole director/shareholder, the reserve director immediately takes up the directorship until such time as another person is appointed as a director, or until the reserve director resigns. This resolves the problem of continuity in the management of the company.

The trouble of not having a reserve director is that the personal representative of the deceased sole director/shareholder needs apply to the court for a court ordered meeting in order to appoint a director in order to effect a transmission of shares to the deceased's estate. This can be a lengthy and complicated process which can often be simplified with the appointment of a reserve director.

OLN's Corporate and Commercial Department regularly advises on corporate structuring and business planning and we are happy to give you further tips and information on the above topic.

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.