Have you ever wondered what could happen to your business if you couldn’t run it anymore? We’ve partnered with Noor Law Solicitors to find out more about how a Business Lasting Power of Attorney can help your business.
Guest Article by Saara Patel, Director | Noor Law Solicitors
We will cover:
- What could happen to your business if you don’t have an LPA
- How an LPA and a Will will protect your business in different ways
The risks of not having an LPA
An LPA is a legal document that grants authority to someone else to make decisions on behalf of the business owner in case they become incapacitated or unable to make decisions themselves.
If you’re a business owner without a business Lasting Power of Attorney, the following issues could arise:
- Decision-making paralysis: If you’re unable to make decisions because of illness or injury, it might not be clear who has the legal right to make important decisions for the business. This confusion can cause business operations to slow down or stop, people may become unable to make decisions, and the business could lose a lot of money.
- Uncertain ownership and management: Without an LPA, no one will have legal permission to manage your business or make decisions about passing ownership.
- Financial management challenges: it might be hard to get to the business’s money in the bank, making it tough to pay bills, workers, or handle regular costs. This could cause money troubles and harm the business’s reputation.
- Legal and contractual issues: Without someone chosen to legally act for the business, dealing with contracts, relationships with suppliers, and other legal affairs could be tough. It might also make it hard to manage everyday business deals.
- Difficulty in selling or transferring the business: If you get sick or injured and can’t run your business, selling it or passing it on could become a messy and slow process. This could lower your business’s worth and make people who might want to buy it or take it over unsure about doing it.
- Privacy and confidentiality concerns: If you’re unable to manage your affairs, sensitive business information and intellectual property may be at risk without a designated person to maintain confidentiality.
- Family conflicts: Without a clear plan, family members or business partners might fight about what’s best for the business. These fights could hurt personal relationships and the business.
What you can do
To avoid these issues, it’s essential for you to have a well-thought-out plan that includes a business Lasting Power of Attorney.
By designating a trusted individual to act on their behalf, you can ensure that your business operations will remain running smoothly, and that you safeguard the interests of your business, employees, and stakeholders.
Make sure to consult with legal professionals such as Noor Law to create an appropriate business LPA that aligns with your specific business needs and its ownership structure.
How can you protect your business?
Accidents: they’re not something we like to think about, but that doesn’t mean they won’t happen.
For that reason, having a plan in place can safeguard your business and its value.
The strategy you’ll need varies depending on whether you’re a sole trader, part of a partnership, or running a limited company.
Let’s first touch on two crucial tools – Lasting Powers of Attorney (LPAs) and Wills.
An LPA lets you appoint someone to make decisions for you if you can’t.
There are two types: one for money matters, and one for health and care. We’re focusing on the financial one here.
Without an LPA, getting someone else to make decisions can take a long time and be a complex process involving the Court of Protection.
And remember, an LPA is only effective while you’re alive.
After you pass away, your Will determines what happens to your assets.
Here are a few benefits of financial LPAs for your business:
- Keep your business running smoothly in case something unexpected happens
- Protect your interests by appointing an attorney who will act according to the decisions you deem best for your business and its future
- Take control – Setting up an LPA will help you skip the time-consuming process of the Court of Protection having to appoint a deputy to manage your business. Instead, by planning in advance, you get to choose who manages your business affairs.
As a business owner, you’ll likely want your hard-earned business value to go to your loved ones.
A Will helps you decide who manages your business and who gets its value, as well as the best time for them to inherit.
A well-planned Will can save Inheritance Tax, shield the business from divorce or bankruptcy, and more.
Here are the benefits of writing a Will for your business:
- Reduce payable Inheritance Tax on the value of your business
- Protect your business from claims such as from ex-spouses or people who might believe they have a right to a share of your business
- Plan for different scenarios: set out your wishes ahead of various possible circumstances, such as in the event of one of your chosen beneficiares predeceasing you
If you’re a sole trader, you are your business – meaning your personal and business assets are considered as one estate when you pass away.
Your business and personal assets are held until probate is granted if you pass away.
Once probate is granted, your assets will be distributed according to the terms of your Will, or, if you don’t have one, according to the laws of intestacy.
As you can see, not having a Will nor a Lasting Power of Attorney in place might mean financial harm or disrupting your business!
To make matters worse, your assets are essentially frozen or put on hold upon your death until the probate process is complete – even if you do have a Will.
An LPA can let someone else make decisions if you can’t, and ensures your business will immediately keep running even after you’re unable to.
Additionally, it allows you to separate personal and business affairs.
You can appoint different attorneys so that the most appropriate person can handle each aspect of your life.
For partnerships, your agreement will dictate what happens when a partner can’t contribute anymore or passes away.
By appointing another partner or trusted individual as an attorney, you can avoid potential conflicts over who should make decisions in case one of you loses capacity.
An LPA can allow an attorney to take over decision-making alongside other partners.
Without a partnership agreement, the death of a partner can dissolve the partnership. An LPA allows you to prevent automatic dissolution.
Ensure your agreement allows the deceased partner’s share to pass under their Will to avoid potential tax issues.
In a limited company, decisions of directors and shareholders are separate.
If a director can’t work, an ‘alternate director’ can stand in.
However, if a shareholder loses capacity, their attorney can make decisions for them, including appointing a new director.
A well-drafted company document ensures maximum Inheritance Tax relief, safe transfer of shares to your family or a trust, and more.
In a nutshell, an LPA can help your limited company protect against the unexpected and is part of effective business risk management.
Sole Director and Shareholder
If you’re the only shareholder and director, and you can’t work without an LPA, there’s no one to vote in a new director.
Having a second director can ensure your business is running while probate is being granted in the event of your death.
Remember that every business is unique, and there’s no one-size-fits-all solution.
So, review your situation carefully and don’t let it be too late.
Secure the future of your business by setting up an LPA or drafting a Will with Noor Law Solicitors.
If you’d like to know more about how you can save on Inheritance Tax, send us a message using the contacts below.
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Kind regards Ilyas