No one expected this. Dr. Thomas, age 55, died suddenly when he fell off his bike and hit his head on the pavement.
Dr. Thomas was a well respected internist with several offices, four associates, and 25 employees. As the only shareholder, he was the only signatory on his corporate account.
Dr. Thomas had met with his attorney and had executed a will, revocable trust, durable power of attorney, healthcare surrogate and living will. His wife was named personal representative.
Now the good part. After the funeral, Mrs. Thomas went to the bank where the corporate account was maintained to have herself made a signatory. The bank wanted to see a certified copy of the letters of administration naming her personal representative.
She said she had an appointment with her attorney to start the probate process, but she understood that the initial documents would take several days to prepare and all the beneficiaries would need to cooperate and execute and return their waivers. She also learned the courts are very backed up and it could take weeks for her to be so named.
Her attorney said that he might be able to get an emergency hearing with the judge to expedite the process, but there was no guarantee. Best scenario- two to three more weeks.
In the meantime, the bank refused to honor any new checks. They said as soon as she becomes personal representative, she would become legal owner of the corporation and she could appoint herself signatory.
But what about the four doctors and 25 employees? The medical practice had payroll of $40,000 a week and $20,000 a month in rent, as well as plenty of other expenses.
As expected, most of the employees soon left as they could not wait a month or longer to get paid. The remaining ones tried to keep things going, but soon burned out. The associate doctors left and ended up with a majority of the practice’s patients. Their covenants not to compete were no longer valid as there was no business to compete against. Then Mrs. Thomas found out that her husband personally guaranteed all the leases and a bank loan.
This need not have happened. All that needed to be done in advance was for Dr. Thomas’ corporation to have emergency bylaws. Once a specified event occurs, such as death, incapacity or unavailability, the emergency bylaws would take effect and name interim officers, directors, signatories, etc. The bylaws could have provided that Dr. Thomas’ attorney could make the emergency determination by executing an affidavit.
Similar emergency arrangements can be formed for other organizations such as limited liability companies and limited partnerships.
This is what you need to do. Review your organizational documents, both for your business and investments, to determine what would to happen in your absence. If this is not covered or clear, have your attorney fix the problem.