Business owners plan for everything: insurance, cashflow, contracts. But many overlook one vital area: what happens to you and your business if the unexpected strikes.
After more than 20 years advising business leaders, I’ve seen first-hand the legal and financial chaos that can follow when Wills and Lasting Powers of Attorney (LPAs) are not in place. This isn’t just a personal risk, it can cause havoc and has the potential to shut down a business overnight.
Why it matters
If you die without a Will…
If you own a business interest, this is likely to be one of your most valuable assets, either in terms of its capital value or its importance as an income-generating asset.
If you die intestate (without a Will), the law, not you, decides who inherits your assets. That includes any business assets.
This may not reflect your wishes. Worse, delays in appointing someone to manage your estate can freeze business operations, tie up company shares and create major uncertainty for family and employees.
On top of the practical problems associated with failing to properly consider the appropriate succession to a business asset, undesirable tax consequences may flow because of failing to have a Will in place.
I’ve seen viable businesses close to collapse simply because no one had the legal authority to act. All entirely preventable.
If you lose capacity without a Lasting Power of Attorney (LPA)…
Mental incapacity can arise suddenly, from illness, accident or age-related conditions. In these circumstances, without an LPA in place, loved ones must apply to the Court of Protection for the right to make decisions on your behalf.
This process is costly, time-consuming and stressful. You will also have no control over who makes the application to the Court of Protection. In the meantime, your business may stall: no one can sign contracts, access accounts or make vital decisions on your behalf.
What is a Business Lasting Power of Attorney — and why do you need one?
A Business LPA is a legal document that allows you to appoint a trusted individual to manage your business affairs on your behalf. Depending upon the authority you decide to give to your attorneys, they will be able to make decisions for you whether due to incapacity or other reason meaning you can’t act yourself.
This is different from your personal LPA. Appointing separate attorneys to deal with your business and personal affairs can avoid conflicts and ensures the right person, ideally someone with commercial expertise and knowledge of your business affairs, is handling your business decisions.
Your chosen business attorney(s) might be a co-director, accountant or solicitor. Meanwhile, you might choose a trusted family member or friend to manage your personal finances.
Having a separate Business LPA in place gives clarity, confidence and legal authority when it’s most needed.
A modest step, a major safeguard
Wills and LPAs can be drawn up quickly, and don’t need to be overly-complicated, but can provide vital protection for your business assets in the event of death or incapacity.
Think of LPAs as a safety net. You hope never to need them, but if you do, they can stop a difficult situation from becoming a disaster. Likewise, having a Will in place will help to avoid complications for the continuance of your business.
Final thoughts
Business continuity planning isn’t complete without legal safeguards for you, the decision-maker. These aren’t just personal documents, they’re strategic tools that protect your company, employees, and clients.
Speak to a lawyer who understands both commercial and private client law. Make it a boardroom conversation (not just a family one) and encourage fellow directors, shareholders and partners to do the same.
