According to a survey by Caring.com, only four in ten Americans have an estate plan in place, with one in five being 18 to 34-year-olds.
It is always a difficult time when a person dies unexpectedly and without a will. Wills prevent costly court proceedings and broken families.
Dying without an estate plan in place means that the state will distribute your hard-earned wealth as it sees fit. And your assets could end up in unreliable hands.
If you’re under 40, you should consider writing a will. It is especially crucial if you are a sole director or have the intention of forming an LLC as a sole director.
The Importance of Having a Will for Individuals Forming an LLC
Typically, in situations where a company has more than one director, the surviving directors will appoint a temporary fill as they await an official appointment from the shareholders. The rights of the deceased director to the interest in the company will pass to the official legatee.
For a company that has a sole director and sole shareholder, the situation will be different.
If the deceased had left a will in place, the executor has the right to appoint a temporary director. This director will manage the company until the entire process of transferring the company shares to the inheritor is complete. Once the process is complete, the beneficiary can then take over the management of the company, or hire a new manager.
If the deceased had no will, the risk of uncertainty would be high. And the resultant consequences could bring the company down.
A relative or close individual would have to apply for letters of administration in the Supreme Court to manage the estate. The authorization could take weeks or months to come through.
Where no one comes forward to apply for letters of administration, the public trustee would have to step in to administer the deceased estate. But again, this would take significant time.
When forming an LLC, the bank, creditors, and other investors will, among other things, consider the potential of the manager in leading the company into profitability. With the confidence that the company is in good hands, they can feel free to commit their funds and goods.
But with a gap in leadership, things are likely to go south.
Here are the effects the management gap will have on the company.
1. Banks and Financial Institutions
When forming an LLC, a bank will only finance the company if the manager proves to have the experience, education, and industry knowledge needed to manage the business successfully. From then on, a relationship develops between the company and the bank, with the bank holding the company’s trading account, and providing credit when the need arises.
If the initial director is out of the picture, the situation is likely to change. No financial institution will be willing to transact with a company if they are not confident about the position of the individual authorizing the transactions.
2. Suppliers
With the destabilization of the management and limited access to funds, suppliers may not receive their payments. Outstanding debts will not just ruin the company’s reputation but could result in bankruptcy.
Customers avoid companies that have a poor reputation. They will run to the competitors, and the beneficiaries would have to work extra hard to bring the business back to its feet.
3. Employees
With no proper management of the company and limited access to funds, the staff will have delayed salaries and low motivation. Poorly motivated employees mean that the services delivered or goods manufactured will be of low quality.
The customers, again, will be unsatisfied and eventually move to the competitors.
Final Thoughts
When forming an LLC, the focus of most business owners will be on meeting general business law requirements and having a business attorney in place. But having a will, especially in the case of a sole director and sole shareholder, is vital.
The death of the sole director could have a snowball effect, leading to the collapse of the company.