The Next of Kin Concept
- The Companies Act 2016 (2016 Act) which reduced the minimum number of directors for private companies to one, created the notion of “next of kin” to handle circumstances where the sole director dies or is unable to fulfill his responsibilities.
- As per 2016 Act, the secretary shall, as soon as practicable, call a meeting of the next of kin, other personal representatives, or a meeting of members for the purpose of appointing a new director if the sole director becomes disqualified, becomes of unsound mind, dies or vacates his office according to the company’s constitution.
- The Registrar may order the company to be struck off the register of companies if a new director is not nominated within six months.
What amounts to ‘Next of Kin’?
- The word “next of kin” is not defined in the 2016 Act. Despite the lack of a description, “a member of the director’s family” is defined in the 2016 Act to include the director’s spouse, parent, children, including adopted children and stepchildren, brother, or sister.
- The term “next of kin” refers to a relative or kin, and it usually refers to people who would be eligible to inherit in event of intestacy.
- If a sole director who is also the sole member of a company is unable to handle the affairs of the company due to mental incapacity, a person may be nominated as a director by the committee constituted under the Mental Health Act 2001 to administer his estate.
Considerations for a private company’s sole director who is also its sole member
Creating a Will
- It is advised that the director prepare a last will and testament, naming the directors who will take over in the event of death or incapacity, to ensure continuity in the company’s business and operations.
List of Successor(s)
- Nevertheless, the sole director may file a list of successors to be appointed as directors of the company with the company secretary.
- Any unnecessary disruption to the company’s business and the possibility of being struck off the register of companies can be avoided with such safeguards in place.
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