Find a service

T. 0114 276 5555

Preserving Businesses in Cases of Incapacity

Share this page:

Alex Guy is an associate and specialist in wills and probate at hlw Keeble Hawson - and member of the Court of Protection Panel of Approved Deputies. He advises business owners to ‘think the unthinkable’ to ensure that their company and assets are protected in the event that they may become incapacitated. 

Alex GuyHowever unlikely it may seem, if sudden illness or accident prevents a business owner from being capable of making a decision or signing a document, the impact could be devastating. In this situation a simple legal document could save your business and give loved ones – and colleagues - the protection they need.

Consider the following scenario: a business owner suffers a sudden stroke. No provisions were written into the articles of the company or shareholders' agreement to enable someone else to take over control and no Lasting Power of Attorney had been drawn up.

The owner’s wife found that she was suddenly caring for her husband whilst trying to run the business without the appropriate authority to do so. Unable to access money from the business account, debts and charges soon mounted up. Even if she wanted simply to cease trading she was unable to give up the lease on the business premises or sell the company’s assets as she had no authority to sign the relevant documents.

If there is no legal framework in place for a named person to take over the business affairs, the case has to be referred to the Court of Protection. This process can take months, cost thousands of pounds, and will result in a complete stranger making decisions about the future of the business. Often it will be expedient to liquidate the assets - in such cases where a successful business could have been sold as going concern, the owner and his family could lose out financially and loyal employees could suffer.

It is vital to decide in advance who would be the most suitable person to run the business if such a scenario should occur - and then to have the appropriate legal documentation prepared.  This could be done in a number of ways.  In the case of a limited company a shareholders' agreement can be important to define how its affairs are dealt with if one of the directors or shareholders is no longer capable of managing his or her affairs.  The Articles of Association of the company will also need to be checked to ensure that they are suitable to deal with such a situation.

In partnerships, a written partnership agreement can regulate what should happen and prevent a limbo situation. For sole traders, a Lasting Power of Attorney may be sufficient to enable the person appointed under the Power to deal with the individual's business as well as personal affairs.

Many people fail to take steps to put such documents in place because they assume that a senior employee or spouse will be able to keep the company running or arrange to sell it at the optimum price. This is simply not true - no-one is able to sign documents or access business accounts without clear legal authority to do so.

A trusted person, nominated in advance to sign legal paperwork, can act swiftly and avoid the pitfalls that could close a business down in the worst possible circumstances. Business owners may be tempted to push this type of planning to the bottom of the ‘to do’ list – but then they are risking everything that they and their families and colleagues have worked hard to achieve.

After all, who would voluntarily hand control of their company to someone they have never met?

Share this page:

Get in Touch