Resilience

Resilience – Wills and LPAs

Posted on by Rebecca Trudgett

Business Resilience – Wills and LPAs

A Business Lasting Power of Attorney (LPA) and a will are two important legal tools that every small business owner should consider. They help ensure that the business continues to operate smoothly in the event of incapacity or death, and that the owner’s wishes are respected. Here’s why both are crucial:

Business Lasting Power of Attorney (LPA)

A Business Lasting Power of Attorney is a legal document that allows a business owner to appoint someone (an attorney) to make decisions on their behalf if they become mentally or physically incapacitated. This is particularly important for small business owners because, in many cases, they are the key decision-makers for the business. If they become unable to manage their affairs, a well-designed LPA ensures continuity.

Why You Need an LPA as a Business Owner:

Business Continuity: If a small business owner becomes ill, injured, or incapacitated (even temporarily), their ability to make decisions about the business may be affected. An LPA allows a trusted individual (such as a business partner, senior employee, or family member) to step in and make decisions on their behalf, ensuring the business continues to operate smoothly without disruption.

Financial Management: The appointed attorney can handle financial matters like paying bills, signing contracts, managing cash flow, and dealing with suppliers or clients. This is essential for maintaining the financial health of the business.

Legal Protection: Without an LPA in place, if the business owner becomes incapacitated, it could be necessary for family members or partners to apply to the court for a Court of Protection Order to manage the owner’s affairs, which can be time-consuming and expensive. An LPA helps avoid this legal process and ensures that decisions can be made promptly.

Avoiding Business Disruption: For businesses that rely heavily on the owner’s decisions (e.g., small or sole-proprietorship businesses), the absence of a clear plan can cause operational disruption. An LPA ensures that there is someone ready to make decisions and maintain operations during an emergency.

 What an LPA Can Cover:

  •   Decisions about the running of the business (e.g., day-to-day operations, employee management).
  •   Access to and management of business finances (e.g., accessing bank accounts, paying taxes, signing agreements).
  •   Managing the business’s property or assets.

Wills

A will is a legal document that outlines how a person’s estate (including assets, property, and belongings) should be distributed after their death. For small business owners, a will is especially important for determining what happens to the business itself and any business-related assets.

Why You Need a Will:

Succession Planning: One of the most important aspects of a small business owner’s will is addressing what happens to the business after their death. Without a clear plan, the ownership and management of the business could be contested, causing delays, confusion, or disruption. The will allows the owner to specify who should take over the business (whether it’s a family member, a business partner, or a key employee) and how it should be managed or sold.

Protecting Family Interests: If the business is a family-run business, the will ensures that the business assets are passed on to the intended heirs and that there are no disputes among family members about ownership. Without a will, family members could be left fighting over assets, which might damage relationships or even the business itself.

Debt and Tax Management: A business might have debts, loans, or obligations. In the will, the business owner can specify how these liabilities should be handled. Additionally, the will can help minimize the tax impact on the estate, ensuring that the business can continue to operate smoothly even after the owner’s death.

Business Partner Protection: If there are co-owners or partners in the business, the will can include provisions for how the business will be transferred to the surviving partners or whether it will be sold to a third party. This can prevent conflicts and help ensure that the business remains operational.

Minimizing Disruption: Having a clear plan in place reduces uncertainty and provides guidance to loved ones, business partners, and employees on how to move forward. It also allows for a smoother transition of the business after the owner’s death.

Key Considerations in a Business Will:

  • Who inherits the business: Specific individuals or entities (family members, business partners, or third parties).
  • The transfer of shares or ownership interests: If the business has multiple owners or is incorporated, the will should specify how ownership should be transferred.
  • The fate of business assets: How things like intellectual property, equipment, real estate, or other assets will be handled.
  • Management of the business: Whether the business will continue to operate under new management or be liquidated.

Together: A Comprehensive Plan for Continuity and Protection

The Business LPA  and the will, will work together to provide a safety net for the business.

LPA: Ensures that the business can keep operating if the owner becomes temporarily incapacitated, allowing someone trusted to step in.

Will: Ensures that the business transitions smoothly after the owner’s death, either to designated family members, partners, or even external buyers, depending on the owner’s wishes.

In Summary:

As a small business owner, both a business-lasting power of Attorney and a will are crucial to ensuring the business’s continuity, stability, and smooth transition. The LPA protects the business in case of temporary incapacity, while the will ensures that the owner’s intentions for the business are carried out after their death. Together, these tools help to minimize risk, reduce confusion, and safeguard the future of the business and its stakeholders.