28/04/2016

This article discusses some of the key estate planning considerations for individuals who play a major role in a small to medium business.
 
1. Enduring power of attorneys
 
If a member of company would like their attorney to be able to vote on behalf of them at meetings, they need to appoint that attorney as a proxy.  For a valid appointment of a proxy certain requirements under sections 250A and 250B of the Corporations Act 2001 need to be complied with (unless the constitution specifies otherwise).  This means the EPOA should be drafted in a way that meets the requirements of sections 250A and 250B or the constitution.
 
It is important to note that the appointment of an enduring power of attorney does not automatically give the attorney the right to step in and act as director of the company.  Even attorneys of members of a self managed superannuation fund must follow the company law requirements before they can become directors of the fund’s corporate trustee.

And of course death automatically revokes the appointment of the enduring attorney.  
 
2. Alternate directors
 
An alternate director is someone who can be appointed to exercise all or some of a director’s powers for a specified period.  This opens up the possibility of having the alternative director act when a director becomes incapacitated.

In particular for sole director or 2 director companies, the alternate director could continue with the day-to-day management of the company if suddenly, the director was unable to act.  Having an appointment in place prior to a director becoming incapacitated will ensure that the company is better prepared if the particular situation arose in the future.

The appointment of an alternate director ceases if their appointing director dies.

3. Choice of executor
 
It is very common for most people to appoint their spouse as the executor of their estate under their Will.  However, the appointment of a spouse as an executor may not always be the best choice for an individual in business.   

Similarly to an attorney appointed under an EPOA, the executor does not automatically assume the role of a director of a company.  However, the constitution of a company may give the executor the power to appoint a director in place of the deceased, including appointing themselves to act as director.
 
When a director is considering the appointment of their executor they may wish to appoint someone who has an understanding of the commercial environment; someone who would potentially be capable of carrying out the responsibilities of the director of the company.  

4. The Will

Normally a deceased cannot bequeath their directorship to someone else because directorship is an office, not property, and your Will can only deal with your property.

However a director of a company may also be a shareholder of the same company.  When a shareholder passes away their shares can go to their chosen beneficiaries under their Will.  It is possible to specifically name a person or persons in the Will who is to receive shares in a company.

The role of a shareholder comes with certain rights, for example, the power to vote at meetings when making decisions about the company. That shareholder could for example vote their shares in favour of a resolution to appoint them as a director of the company.

Whether it is a sole director/sole shareholder company or a bigger company, getting an estate plan in order (and regularly reviewing that estate plan) is essential to avoid any disasters later on that end up with a company in crisis and expensive court procedures.