Being a separate legal entity, the company is not terminated by the retirement or death of a shareholder. However, if the death or retirement results in poor management, a decline in business, failure to restrain costs and an eventual fall in profit, the company may still be forced to cease carrying on business or to sell to another company or to liquidate. The situation may arise from several causes. The departing shareholder may have been the sole act and manager of the company and possessed all the skilled expertise and creativity on which it prospered. The company may be unable to find enough cash to repay the loans owing to the departing shareholder.
Shares carry voting power.
Control and management of the company may fall into the hands of outsiders or relatives unable to run the business. The Constitution of the company may give a director the power to appoint a successor. Swayed by family loyalty, the director may choose a relative who lacks the necessary ability for the position. The plan should therefore be drawn up by the shareholders of the small company, setting out the procedures to be followed in the event of retirement or death of one their members. This should be supported by appropriate clauses in the constitution of the company and in each shareholder s will.