What would happen to your business if you were unable to work?
Consider, for a moment, what would happen to your business if you were unable to work for one month or for one year, or if you were never able to work again. Would your business survive? Who would make decisions? How would this affect your family and their future? What would happen to your employees?
Peace of Mind in Three Documents
You may be thinking that you already have a Shareholders’ Agreement or Partnership Agreement in place which sets out what will happen to your business if you die or you are incapacitated. These documents are important, but they are only part of the solution. Without the following three documents as well, the relevant provisions of your Shareholders’ Agreement or Partnership Agreement could take much more time to implement or, at worst, could be ineffective. The result? Damage to your business, unnecessary stress for your business partners and employees, and more distress for your family.
So whether you are a sole trader, a partner or a shareholder, please ensure that you have the following three documents in place:
1. Your Will
So many people do not prioritise getting a Will in place. What could that mean for your business?
It is often assumed that your estate passes automatically to your spouse. That is not the case, but even where that does apply, will your spouse be able to step into your day-to-day role in the business? Do they even understand the business? Would they be able to cope with this emotionally?
With no Will in place, an estate also takes much longer to administer, severely restricting anyone’s ability to manage the business properly in the interim. How will your family manage if the business fails in the meantime? These sorts of concerns can be easily addressed if you have the right Will in place.
If your Shareholders’ Agreement or Partnership Agreement already deals with what should happen on your death, having a Will in place will properly align your personal and business arrangements, and should ensure there is no unnecessary delay in implementing the relevant process (for example, an automatic buy-out of your interest in the business). From a practical perspective, this means your business partners are not accountable to your family and can focus on pushing the business forward.
2. A Lasting Power of Attorney for Property and Affairs
Widely known as ‘the financial power of attorney’, this document gives someone you have chosen the authority to step in and manage your personal finances and business affairs, if you are unable to do so.
Again, it is a common myth that your spouse or “next of kin” will automatically be able to take over responsibility for your financial affairs, if you are incapacitated. That simply isn’t the case, and very often their attempts to do so will be frustrated by data protection laws and security/confidentiality restrictions.
Typically in this situation, your family’s only option will be to make an expensive and time-consuming application to the Court of Protection in order to take over responsibility for your personal finances, during which time no-one will be looking after your business and other financial affairs.
3. Lasting Power of Attorney for Health and Welfare
This gives your chosen attorney(s) power to make non-financial decisions, on your behalf, should you be unable to. These can include decisions about where you live and how you live, how often you go to work or are involved in discussions regarding your business, and whether you have life-sustaining treatment.
By preparing this document in advance, you can appoint someone that you trust, and who knows you well, to make these decisions on your behalf, and at the same time avoid the need for lengthy and expensive Court applications.
If you are a business owner, and you do not have these three documents in place, please prioritise this and take action as soon as possible. Just three documents can help to safeguard your family, your business and your employees, and give you peace of mind.
Michael Culver and his team at Bolt Burdon specialise in succession planning for high net worth individuals and business owners. If you need our help, please contact Michael for an initial conversation.