In the latest in our new series of legal features, Russell Hallam, managing partner at Turbervilles Solicitors, writes about the importance of safeguarding one’s business and finances should adversity strike.
Most leaders have a disaster recovery plan for their business if say, the office building was burnt down or there is a computer system meltdown in the office. Yet how many businesses have a disaster recovery plan in place in the event a sole director or a partner of the business loses mental, physical capacity or dies suddenly?
Even if you do not follow Scottish football, some of you may remember when Brooks Mileson (Gretna’s FC owner) became critically ill in hospital in 2008. Mileson was the sole person required to sanction all payments and it meant players and staff were not paid. Subsequently the football club was forced into administration and had to leave the Scottish Football League.
Yet across the country, there are potentially hundreds of thousands of SME bosses who are leaving themselves vulnerable to a similar fate simply because they haven’t planned for this possibility – and as the sole director/shareholder only they can control the what’s on the bank mandate and whether staff and suppliers can be paid.
Without an insurance plan in place, an application would have to be made to the Court of Protection in order for someone to be appointed as a deputy. However, this process can take months and the costs involved can quickly mount up.
What contingencies one puts in place to safeguard a business will depend on the structure of business. If it is an unincorporated business – say a partnership – then it is worth reviewing the partnership agreement to see whether it could dictate that if one of the partners lost mental capacity he or she could be ejected from responsibilities. If one owns the company and is the sole director and/or shareholder then it is worth considering employing another director so there can be continuity of the business.
However, sometimes these options will not suit or cannot be agreed upon. In this situation then the best action to do is to draw up a “lasting power of attorney”. This is a document which allows the business owner to appoint someone to act on their behalf; and have this appointment registered with the Public Guardianship Office. One or more attorneys can be appointed and can act together or separately.
Read more from Turbervilles Solicitors:
- Are you breaking these legal rules in your hiring process?
The crucial steps to take so your business is protected
- That if your business is incorporated – you will need to put a directors LPA in place. Under company law, a director only delegate their responsibilities unless specific provisions are factored in
- Take your time to choose the right attorney(s). You may have spent years building up the business so take time to consider who would be the best person to make the day to day decisions should you ever become incapacitated. Is that person familiar with the business already? Will they have the right skill set? Even if they aren’t au fait with the business or have the skills, you may decide to engage someone who you trust to ask the right people to make the day to day decisions
- Most businesses will have an accountant, so an attorney can seek advice about finances and running the business at the start if need be before employing a new director
- Most of us have drawn up a will so that in the event of our death any personal assets and responsibilities can be divided without contest. Make sure you do the same for your business. In the event of your death, would you want the business to be sold? Or would you want specific employees or family members to takeover? Who would receive shares and what would the division be?
You may continue to run your business for another twenty or thirty years, but by taking precautionary steps you can have peace of mind that should adversity strike before then, your business affairs will be settled according to your wishes.
View original article: http://realbusiness.co.uk/article/32533-safeguarding-your-business-against-mental-physical-incapacity-or-death