Do you know how your business would operate without you?
If you run a business it is critical that you plan for what happens to the business not just on your death but in the event that you become incapable of the day to day running.
Making sure your business runs smoothly
Many people are aware of property and financial lasting powers of attorney. These documents allow someone, chosen by you, to manage your finances and property if you can’t manage them yourself. For example, if you are abroad, in hospital following an illness or an accident or have lost mental capacity through a stroke.
If you are a business owner, particularly a small business or sole trader, it is vital to have someone who can run the business, even if only on a temporary basis, if you are unable to do so.
Many people appoint a family member to be an attorney to deal with their property and finances. However, a family member may not be the most suitable person to manage your business interests. For this reason we recommend that you put a second lasting power of attorney in place that relates solely to your business interests and which can, for example, appoint a fellow director or business partner. Each lasting power of attorney clearly sets out the matters on which the attorney can act and ensures the smooth running of the business.
Without a lasting power of attorney in place, if you lose capacity, someone will have to apply to the court of protection for an order to manage your business. This may not be the person that you would have chosen. In addition, the application process is expensive and lengthy. Whilst the application is being made the company’s assets may be frozen, causing losses to the business.
Passing on your business to others when you die
If you leave your business interests to someone in your will you may expect that they will automatically be received by your chosen beneficiary. However, this is not necessarily the case.
If you are in a partnership it is important to look at any partnership agreement to ensure it does not prevent you from transferring your interest in the partnership.
Private limited company
If your business interests are shares in a private limited company the articles of association may prevent the benefit of shares passing to your chosen beneficiary. The articles of associate of a company determine how the company is run and the rights of each shareholder.
Most companies have adopted a Table A or Model Articles. If your company has adopted Model Articles, and these have not been modified, the shares will pass to your beneficiaries but the directors can refuse to register them as owners of the shares. The directors do not have to give a reason for refusing to register the shares. If this situation arises your beneficiaries will have no voting rights or say in the way the company is run. Other directors could elect not to pay a dividend, therefore your beneficiaries would not receive an income from the shares.
There are many different versions of company articles and it is vital that they are reviewed to ensure your wishes can be carried out.
How we can help
At Atherton Godfrey we have commercial and private client solicitors who can advise on your individual circumstances and if necessary what changes might need to be made to ensure your business can run smoothly and pass to your chosen beneficiaries.