Consequences of Lunacy of a partner in a private company
In a private limited company is set up by two persons. One person dies or becomes a lunatic, then what happens to the private limited company ? Does it become a One Person Company? If so, does the articles and memorandum of association need amendment ?
In order for a private limited company to function, there must be a minimum of 2 directors. In the event of death of one of the two directors of the company, the shares which were owned by the deceased director may be sold to a person who the Board of Directors wish to appoint as the new director. A Private Limited Company does not become a One Person Company on the death of one of the directors. However, a Private Limited Company may be converted to a One Person Company after passing a Special Resolution in the General Meeting in order to approve the conversion. Further, before passing such resolution, the company has to obtain a No Objection in writing, from existing members and creditors. It is important to note that No objection must be obtained from existing members and creditors before passing Special Resolution.