Attention all Business Owners!
Do you have a succession plan in place with a Business LPA?
As a business owner myself I know only too well it takes courage to step away from the security of a regular salary and venture into the uncertain world of self-employment. It is only natural and indeed right to focus on marketing, customer service, financial management and of course legal and compliance obligations, and not even think about things like a Business LPA. However, despite the challenges, owning your own business can be incredibly rewarding.
What would happen as a Business Owner if you were to lose capacity?
If you are reading this article as a business owner, have you considered what would happen to your business if you were unable to make decisions due to illness, an accident or worse still death.
You may have heard of a lasting power of attorney (LPA) which allows you to authorise a person/people to make certain decisions on your behalf. But did you know it is also possible to have a dedicated business LPA which gives certain individuals the responsibility to take on your business management tasks in the event of a temporary or permanent loss of capacity.
Over the course of my career, I have encountered numerous occasions where a sole trader’s account was frozen, and the family were unable to access the business bank account to pay suppliers due to a sudden illness. This can result in loss of business and reputational damage not to mention the emotional and financial stress for your family, all of which could have been avoided with a Business LPA.
If you employ staff would there be someone in your business authorised to deal with payroll if you were incapacitated? Similarly, could sales and other business contracts be fulfilled without your direct input? If you did find yourself in a situation where you were unable to make business decisions and you have not made a business LPA it may be necessary to make an application to the Court of Protection to appoint a person who would have the legal authority to act on your behalf. In this situation as a business owner, you would have no say over who the Court appoints. This process is expensive and can take around six to eight months to finalise. This delay could have a significant impact on your business.
Should I make a Business LPA?
The simple answer to this question is yes. Making a business LPA will be appropriate for most business owners.
Key issues to consider before creating a Business LPA
1. Review your business documents
Sole trader
If you are a sole trader, it is unlikely your business will have a separate legal entity, and an LPA will be the most appropriate way to ensure the continuity of your business if you were incapacitated.
Partnerships
If you are a partner and there are several partners in the business, you may already have a partnership agreement in place which deals with this issue. If you are unsure and would like the comfort of knowing an Business LPA is in place it is important you obtain legal advice to ensure the wording of the LPA doesn’t conflict with the provisions of your partnership agreement.
Directors
As a director your articles of association will normally provide for the termination of a director’s appointment in the event of loss of capacity. If, however, you are the sole director of a small private company a business LPA would be appropriate as it is unlikely your appointment as a director would terminate under these circumstances.
Who do I appoint?
Choosing the right person/people to manage your business affairs through a Buisness LPA requires careful consideration. Who has the right experience and skills, and will they be able to handle the responsibility? Whilst family members are often the logical choice for your personal affairs would they be the right people to step in and run your business?
Clear instructions and guidance
The LPA itself will need to include clear instructions and guidance for the people you appoint to manage your business affairs. As difficult as it may seem communication is key for a smooth transition.
Don’t forget your Will!
Any business succession planning would not be complete without a review of your Will. Independent research conducted by the Society of Trust and Estate Practitioners (STEP) found that 69% of family business owners did not have a succession plan in place after death and only 32% of family business owners have an up to date Will. You can read more about this subject in our recent blog, Why Making a Will Now Matters: Advice from Will Writing Solicitors in Colchester.
There is no escaping coverage in the news and social media surrounding Chancellor Rachel Reeves changes to Agricultural and Business Property Relief and therefore the need to have a clear succession plan in place and to act now is even more important.
Key issues to consider when making a Will as a Business Owner
1. You can ensure your business is able to operate smoothly by appointing an Executor often referred to as a Special Executor who has the skills required to enable your business to continue to operate after your death or until such time as the business is sold or wound down.
2. You can stipulate who you wish to pass your business to minimising the risks of disputes.
3. You can ensure the beneficiaries of your Business LPA inherit your estate in the most tax efficient manner.
4. It is useful to include instructions for the valuation of the business and to clarify how any business debts and liabilities should be handled after your death.
Acting now will help alleviate the emotional and financial distress in the long run and help preserve the business and or its value you have worked so hard to create.
If you would like any further information please contact me, I would be happy to help!