Would Your Business Survive Without You?
For many owner managed businesses this can be a tough question to answer given the owner is often the operational engine, sales force and the drive behind a business. It is a question that needs to be asked though and not just from a succession planning point of view, but also from a short to medium term capacity point of view.
What if the Owner Loses Capacity?
One of the lessons from the Covid pandemic is that it is quite possible for a business owner to be out of action for some time as a result of an illness. However, many businesses do not have clear procedures to follow in terms of basic decision making in the absence of key people.
A Business Lasting Power of Attorney
A lasting power of attorney (LPA) is regarded as good practice for most people in terms of their personal affairs however, it is often seen as being wise for a business as well.
A business LPA can be used to set out procedures and practices if key people have an accident, a medical condition or even when on extended leave. This helps ensure that day to day tasks such as making payments (including salaries), important operational decisions, and new business proposals can all continue during an absence.
Do all Businesses Need a Separate LPA?
For some sole traders the business may not have a separate entity from the owner. In these circumstances appointing an attorney within a business LPA is an effective way of ensuring the business will continue. It might be possible to have one LPA drafted that covers both business and personal assets however, it may not be appropriate for the same person to manage your personal and business affairs.
Partnerships and LPA’s
It is possible that a partnership agreement will specify what happens if a partner is incapacitated.
If the provision is adequate a business LPA may not be required however, if there is any doubt then the partnership agreement may need reviewing or a Business LPA could be required. In this instance the wording of the LPA would need to be drafted in a way that does not conflict with the partnership agreement.
Company Directors
Directors of larger companies should review the company’s articles of association to determine if incapacitation is directly referenced.
In smaller limited companies the articles of association may not specifically address the issue and in these cases a business LPA could well be appropriate.
Planning for challenging times is a core responsibility of businesses. Too many business leaders neglect provisions for the decision-making process when they are not available due to ill health or an accident.
Businesses can run into dire trouble without clearly defined processes and could ultimately fail, not for any trading reason, but because of a decision-making vacuum. This could result in the loss of a viable business and potentially the jobs of those employed by the business.
To discuss drafting a business LPA please contact us and one of our specialists will guide you through the process.