Whether temporary or permanent,the unexpected incapacity or death of an owner and director may result in failure to pay third parties or employees; failure to fulfil customers” expectations; lack of regulatory compliance; and of course, consequential reputational and financial damage. So how do you protect your business, ensuring none of these happen when you’re out of the picture
Sole traders are particularly at risk. But the risks also apply to companies that have only one active director and majority shareholder. In that situation, there may be nobody with power to appoint another director, while in partnerships, death or incapacity might result in liquidation of the partnership, even if that is not what was ever intended.
Without suitable arrangements in place regardless of your set-up, even sorting a payroll or settling bills could become difficult with these matters taking months to resolve with banks. These tips show how to protect your business should something suddenly happen to you.
Set up a Commercial Lasting Power of Attorney (LPA)
Protect your business by considering who you would appoint to operate it in your stead, ideally a person who is familiar with?both it and the sector, to ensure continuity. You can appoint different attorneys for business affairs as opposed to personal affairs.
This is known as a commercial LPA (also known as a business LPA). Your commercial LPA is separate from your personal LPA for property and financial affairs or healthAnd welfare. Appointing the right attorney for your business interests is critical to help safeguard your business and ensure it is in safe hands.
Make a Will
We never like to think about the worst happening out of the blue, but any business owner should give serious thought to who you want to inherit your business, possibly appointing separate executors to manage your business interests, as opposed to your personal assets. While a badly drafted Will or no Will at all is likely to result in delays and complications with potentially dire consequences for your business.
Make a Lasting Power of Attorney (LPA)
An LPA is a document that you sign whilst you are capable, appointing one or more people who would have authority to manage your personal finances and make decisions on your behalf, in the event of future incapacity.
There are two types, both of which will help?protect your business:
Health and welfare: This covers decisions about your medical treatment and other matters relating to your personal welfare. It can authorise your chosen attorney(s) to give or refuse consent to life-sustaining treatment, on your behalf, if you are incapable of making a decision yourself.
Property and financial affairs: This authorises your chosen attorney(s) to manage your finances, including accessing your bank accounts, selling your house and paying your bills, on your behalf. Your attorneys must act in your best interests at all times, and they are accountable for their actions.
Review the shareholders” agreement / articles of association / partnership agreement
According to the legal form and ownership structure of your business as a limited company or business partnership, it is vital to ensure that any documents reflect your business continuity plans for death or incapacity and they are drafted to support your chosen attorneys or executors in dealing with your business appropriately in the event of your incapacity or death.
They often contain pre-emption rights for your partners or co-shareholders. Think carefully about how these documents also fit in with the provisions of your Will.
Consider whether you need to have appropriate insurance in place for any unexpected illness or accident. For example, you may want your business partner to be able to buy out your family, but how would this be funded Suitable ?keyman” insurance policies may help your family’s financial security.
Communicate your wishes and plan
By discussing all the issues with family and business partners in advance, you can help to avoid potential conflict in succession planning and identify any concerns, while a well-drafted business continuity plan will provide your business partners and employees with essential information to help them keep the business running in your absence, whether temporary or permanent.
Penny Wright is a partner in the inheritance protection team at Gardner Leader Solicitors