Business owners – know your options in protecting yourself and your business
As a business owner or shareholder, it is imperative that you protect yourself and your company in the event of your death or loss of capacity to make your own decisions. Paul Collingwood, from Newcastle law firm Sintons, explores options.
An injury or unexpected loss of capacity to you can impact significantly on your business. It could result in no-one being authorised to make payments to suppliers, pay wages, or enter into contracts. As a result, your business could be put under a huge amount of strain and, in certain circumstances, go into liquidation.
All business owners (whether a sole trader, partner or company director) should consider putting in place a lasting power of attorney (a “LPA”) to enable the business to continue to operate successfully in the event that he or she is not able to make financial decisions personally.
The idea behind the LPA is for you to appoint someone (known as your “attorney”) who you know and trust to step in, if you suffer an injury or lose capacity to make decisions, at some point in the future. As a business owner, you will want to choose someone to act on your behalf who is both familiar with the business on a day-to-day basis and is commercially astute. If you are a company director, you will also want to review your company’s articles of association and shareholder agreement to see what happens if you or another director were to lose capacity as the LPA, articles of association and shareholder agreement need to work alongside one another.
The LPA can be tailored towards your business interest only or, alternatively, it can also cover your personal assets should you wish. This would require careful drafting.
If you were to lose capacity without having made a LPA, an application would need to be made to the Court of Protection for someone to be appointed as your deputy. This is a costly and time consuming process and someone who you would not want to act in your place may end up being appointed.
It is natural to hope that you will never need a LPA. However, why take the chance? For a relatively small cost, you can ensure the continued success of the business that you have worked so hard to build up.
Making a Will
While running a business can be hugely rewarding both on a personal and financial level, one thing that is often neglected is consideration of what will happen to the business on your death.
If appropriate provision has not been made, then disputes can arise over how the business is run on a day to day basis, who makes the decisions and what roles others have or will have in the business. Usually, there are other people’s interests that need to be considered as well as your own. The business’ future could be in jeopardy until any such issues are resolved.
The most effective way of protecting your interests and those of your family and business partner is to make a valid will and a shareholder agreement which includes an option for the surviving business partner to buy your interest from your estate.
Not only will doing this ensure that your business interest passes to those people you wish to benefit but it will also enable a smooth transition in the ownership of the business. This will give much needed certainty to both your family and business partner. Furthermore, by having a will in place, you can explore more inheritance tax planning opportunities that are often missed by not having a will.
If you die without a will, certain rules called the intestacy rules dictate who benefits from your estate. Complications for your family and your business partner can arise at what is already a difficult time. Your beneficiaries under the intestacy rules could be under the age of 18 and therefore applications to the Court of Protection may be needed for business decisions to be taken or your business interest could end up passing to someone who is not interested in the business and would be detrimental to the business moving forward.