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Does the Death of a Company Director/Founder Mean "the Death" of the Company?

Each day of undisturbed operation of a company is of the utmost importance for business operations of the company if the same wants to be competitive and profitable in its business, considering economic circumstances and market conditions in which the competition is increasingly expressed.

It is quite a common case that a company is organized as a single-member company, i.e. that the founder and director is the same person and that one person runs the business of the entire company.

In most cases, companies with this form of organisation are in fact family companies and at least one family depends on the income of the same. Crucial problems for the functioning of such companies arise in the case of the death of the founder, i.e. director of the company, because the death of this person result in a complete blockade of the company's operation and lives of people whose existence depends on the same.

Namely, when a director/founder dies, no person can provide the continuation of a regular business because they do not have the authorization to take all necessary actions, for example to execute payments or to conclude necessary deals for the company's regular operation.

It should also be taken into account that, in most cases, in such companies there is only one person managing the company and undertaking everyday tasks essential for the functioning of the company such as the disposal of the company's funds, the conclusion of the contract, etc. and that is the director himself, and actually the same is the only person authorized to undertake these actions. Therefore, in the case of the death of the director, the blockade of the business of the company is inevitable. This means that our laws do not envisage any measures or solutions that could be applied to keep that company functioning smoothly until the inheritance process is completed. For example, in terms of the legal solutions of the countries in the environment, one of the options for resolving this situation is to introduce a concept of "temporary representative of the company" who would manage the company until finalization of the inheritance process and thus enable continuation of the regular business of the company. The temporary company's representative would be entitled to take only the actions required to provide the company's regular business in order to avoid any losses during that period, or delays in payment of regular obligations, which could become much higher if paid later.

However, the current legal regulations jeopardize the business of the company since the same has to stop its work until the end of the inheritance process and appointment of the heir where this process may last for several months. Thus, the company may not die with the death of its founder/director, but due to the fact that there is no person who would "keep it alive" until the end of the inheritance process, because the legislator did not consider this situation when creating legal provisions, the same cannot maintain its own regular business. Obviously, the saying "Time is Money" is irrelevant for our legislation, because in the manner described above, the company loses too much time and in meantime cannot gain a profit or at least avoid additional costs that may ultimately endanger the survival of the company itself.

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Sanja Djukic's picture

Sanja Djukic is a Partner, employed by the Law Firm SAJIC since 2007. Sanja graduated from the University of Banja Luka School of Law in 2006.

In addition to labour law and health law, Sanja's area of expertise is banking and finance law, company/corporate law, M&A and telecommunications law.

Sanja is a member of the European Association of Attorneys (AEA) and Union Internationale des Avocats (UIA).