As business owners you are under constant pressure: pressure to maintain and grow your business, pressure to produce sufficient income to sustain yourself, pressure to look after your work force, pressure to look after your family - the list goes on. Trying to juggle all these day to day issues will leave little time to address future concerns. However, it is these “what if” scenarios that probably provide the most sleepless nights.
Many business owners will have considered the effect that their death would have on their business and, hopefully, taken steps to address these, such as having key man insurance in place, relevant provisions in your Will and shareholder agreements to cover the ownership of company shares. However, have you thought about what would happen if you were unexpectedly unable to continue to run your own business during your lifetime?
Sadly there are many different circumstances in which mental incapacity can occur, whether this is gradually, such as with early onset dementia, or suddenly, such as a stroke. Given these circumstances it is important to ask the question, can your business still function without you in the long or short term?
There are simple things that can be addressed for the day to day functions, such as ensuring you are not the only signatory on the business bank account or allowing someone else to have the authority to ensure salaries are paid each month. However, what about larger decisions? Can a resolution be passed without your vote?
You may well have considered putting a Lasting Power of Attorney (LPA) in place to deal with your personal affairs. A Property and Financial LPA is commonly put in place by individuals, as this allows your chosen attorneys to deal with all financial aspects of your life both while you have capacity or if you lack capacity. This enables the LPA to be used if you are mentally or physically incapacitated.
However you may be unaware that unless the LPA is expressly limited, a traditional Property and Financial LPA will also allow your chosen attorneys to deal with your business interests, access your company bank account if you are a signatory, exercise any rights to vote under your shareholding and so on.
You will often appoint trusted family members in the role of your attorney - your spouse and/or your adult children. However, these individuals may not be the most appropriate people to take over your role in your business. For example, would you be comfortable if your business partner’s children had a say in how your business was run, or vice versa?
It is important to be aware that you can prepare more than one Property and Financial LPA: one to deal with your personal finances and one to deal with your business interests. This enables you to appoint attorneys, perhaps in agreement with your business partners, who have the relevant knowledge and expertise to deal with these aspects for the benefit of your firm. The authority under the LPA can be tailored, to a certain extent, to suit your personal needs. This could be to limit the use to just exercising your voting rights, through to giving your attorneys complete authority to act as if they were you within the business.
From the overall UK business population, 60% of businesses are sole proprietorships, 8% ordinary partnerships and 32% limited liability companies with a combined annual turnover of £1.8 trillion. Your business is an important part of this community so it is essential to plan for the future to protect it. Your time is precious, but to ensure you have a say in preserving your business in your absence, succession planning should not be put off.