iad wrote: ↑Wed, 08 Apr 2020 12:42 pm
Hi, I need some urgent advice on the following.
If a private limited company were to wind up, and one of the directors have already passed on, would the family of the deceased director be liable to pay up the capital and whatever outstanding debts of the company when it winds up?
Your question, as asked, doesn't quite make sense. Perhaps after reading this you can provide more specifics of what it is you are trying to do.
First, directors don't pay up capital, shareholders do. The paid up capital in a net worth account is the sum total that shareholders have paid for their shares.
It is illegal for a company to issue shares to a person or company without collecting the full value of the share price. For example, the company could not induce you to buy shares in the company by offering you a loan or a payment plan (which is a loan).
Therefore, you must be clear when you say "liable to pay up the capital", because if the company has failed to collect all money that was due for shares, it is the company, and the remaining directors,not the dead director, that has the legal problem.
The shareholders have the responsibility for making payments for the shares they own, if they have not already done so. If I agreed to buy 100 shares at $100 each but have only paid $1000, then the remaining directors have the right to demand payment or return of the shares.
You said, "one of the directors already passed on". You should have immediately removed this person from your BizFile records as dead people cannot be directors. This person ceased being a director of the company on the day he died.
Directorships are not like kingships... they do not pass to the descendants of the director. But the shares that the director might own are assets and part of the director's estate. These shares (along with any attendant debts owing) would be passed along to whomever is named in the will, or in the absence of a will, as stated by probate law.
Therefore, the people who inherited the director's stock own the stock. If the stock hasn't been paid for, the company must either reverse the issuance of the stock or collect the money owing.
Shareholders total liability in a company is limited to the amount they invested in shares. You've got $10,000 in shares. The company loses a judgment and is ordered to pay $10 million. You might lose your $10,000 but you won't be responsible for the $10 million.
Debts incurred in the name of the company cannot be collected from directors, employees, or shareholders, only from the company. So, for example, if the company owes six months of past due rent, then the landlord can only go after the company, even as it winds up, to collect payment. Same for all sorts of accounts payable, made in the name of the company.
In fact, this is exactly the reason that winding up a company takes so long and has so many steps in it... to ensure that creditors have an opportunity to collect their debts from the assets of the company being wound up.
But, often when a private limited company wishes to secure a loan, then the bank requires that the director of a private limited must also assume personal liability for the loan by co-signing the note. If the company fails to pay the loan, then the loan is payable by the director.
If the director dies, then unless the company has paid the debt or made arrangements to have a different guarantor, then the debt becomes part of the estate of the director, and the debt must be satisfied from the estate. This can substantially delay the probate process as a creditor will not want to give up collection rights until the debt has been fully paid by the company.
In general, family and descendants of a dead person are not responsible for debts incurred by the dead person. So, let's day the dead director co-signed a note for $300,000, and the company doesn't make payments. The bank will demand payment from the deceased's estate. If there is only $100,000 in the estate, then the bank only gets $100,000... they cannot demand that the family pay the rest.
