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Jordans FAQs: Is there scope for the concept of “reserve directors” to be introduced in the UK?

5th Mar 2014
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Q: Is there scope for the concept of “reserve directors” to be introduced in the UK?

A: The concept of reserve directors exists in the British Virgin Islands and can be an invaluable tool in succession planning.

Many BVI business companies have a sole shareholder and sole director who is the same individual (the “Investor”). This is permitted under the BVI Business Companies Act, 2004 but can be problematic upon the death of the Investor.

When the Investor dies in this situation his heirs will not be able to take over the company until the probate process has been completed in the BVI. No individual will be able to appoint a director because there is no remaining shareholder and so the company will not be able to operate for several months. This can obviously have serious implications for the company.

A solution to this problem is for the Investor to appoint a “reserve director”. The reserve director has no duties or responsibilities until the death of the Investor. Upon the Investor’s death he would immediately take up his appointment and can begin running the company. As a result the company will not be in limbo while probate is resolved.

With the introduction of the Companies Act 2006, private UK companies need only have one director who can also be the sole shareholder. As there is now no need for a private company to have a secretary, it is possible for one individual to form and run a private company. The concept of reserve directors could therefore be usefully introduced into UK company law.

About the author: Philip Jacques is Senior Legal Adviser, Jordans Trust Company

For more information, visit Jordan's official website.

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