Business owners often look at succession as something that will happen many years or decades into the future. The truth is, writes Jessica Partridge of Mayo Wynne Baxter, none of us knows when these plans will become reality
Whatever your age, if you own a business, it is important to consider who you could involve now at a management level. You may also wish to put in place a Business Lasting Power of Attorney to enable a trusted individual to act on your behalf should you become unable to do so by way of mental or physical incapacity.
Investing in legal advice now could avoid everything you had planned for the future of your business and for your family being completely washed away.
DO YOUR ARTICLES OF ASSOCIATION, PARTNERSHIP AGREEMENT OR LLP AGREEMENT ENABLE YOUR EXECUTORS TO ACT?
Ensuring your organisation’s governing documents enable your executors to act on your death and not to have to wait to get probate is essential. Failure to do so may result in the business being unable to trade.
A starting point is to ask yourself if your business could survive for up to six months without you while your executors obtain a grant of probate. Would the business be able to continue to pay its workers, suppliers and fulfil customer orders?
It is likely your governing documents will need amending to allow the executors to act.
DOES YOUR WILL COMPLEMENT YOUR ORGANISATION’S GOVERNING DOCUMENTS?
Many of our corporate clients separate out their wishes for their private and business assets, but tying the two together is vital when it comes to planning for the future. It is common to assume that because a Will is in place, everything is in order. However, there could be an important missing link.
Our experienced team can examine your governing documents and your Will to ensure they fit together. As seen in a recent High Court case, the wishes you have set out in your Will may not in fact be possible because of the way your articles of association have been drafted. Once they are in place, it is important to keep these documents under review and ensure they remain up to date as your business and personal lives change.
KEY PERSON INSURANCE WITH A CROSS OPTION AGREEMENT
Having insurance in place along with a cross option agreement for fl exibility gives further peace of mind. Most people will pass their business interest to their spouse, partner or family. Those benefi ciaries may wish to ‘sell’ these back to the business, but there is nothing binding to make this happen in the absence of a pre-drafted agreement. The business may not be able to buy the shares from the beneficiary (even if they wanted to) as they may not have any readily available cash. Perhaps borrowing is an option. This will take time. Would it even be possible against the likely backdrop of a potentially traumatic period for the organisation?
They could sell the shares on the open market but, would they get a fair value? How long would this take? The business would almost certainly not welcome this course of action.
What else? The spouse may decide to keep the shares and become actively involved in the business. This could be an unwelcome event for any remaining business owners.
Key person insurance would solve this problem, allowing the business owners the option to purchase via the life insurance policy which allows the beneficiaries to receive the cash they would prefer.
CHECKLIST:
• Check key man insurance
• Check life insurance
• Check shareholder/partnership agreements/articles
• Check powers of attorney n Check business structure
• Update the Will
• Talk to the family
• Talk to the professionals
Planning ahead to protect your family and employees from unprecedented stress is surely reason enough to put provisions in place in case any of the scenarios above were to play out.
