Although companies are considering their business succession planning more than ever, data from the National Association of Corporate Directors shows 37% of companies are still leaving it to chance. This is because they have not formalised their continuity plans in case of a sudden CEO departure.
Through strategic succession planning, learn how your business can stay at the helm.
What follows is a real life case study that highlights the importance of considering succession planning.
Last year, a business owner unexpectedly suffered a serious illness that left them in a persistent vegetative state. They were the sole director and shareholder of their business, employed several people, and were negotiating a contract for its sale. Being a sole director, there was no one with the authority to continue negotiating the sale contract, or access the business accounts to pay rent or salaries.
In this situation, an order to appoint a deputy was required and an application to the Court of Protection was made. A deputy is a person appointed by the Court to make decisions on behalf of a person who has lost capacity. The Court took several months to complete the application, during which time the business was vulnerable, and the sale could not progress.
With some forward planning, you could avoid this happening to your business. Where you are running a business with one or more individuals you should consider having in place a shareholders’ agreement or partnership agreement. This could cover an option for the existing partners or shareholders to buy your interest in the business should you lose capacity or die.
A sole director/shareholder should review the company’s constitution and consider implementing provisions that allow your personal representatives to appoint a director so that day-to-day duties can continue if you were to pass away.
In addition, you should consider putting in place a Lasting Power of Attorney (LPA). An LPA is a legal document through which you authorise a trusted person to make certain business decisions on your behalf if you lose your capacity. This document can ensure the continuity of your business in the event that you lose mental or physical capacity, either permanently or temporarily. It is important to note that the LPA will not prevent you from taking back control of your business as soon as you have regained capacity. In our example above, if they put an LPA in place to appoint someone to manage their business and financial affairs, an order to appoint a deputy would not have been necessary.
If you are a sole trader and you die without making a Will, then the people appointed to administer your estate will not have any power to continue running your business, other than for a short while to preserve the assets for sale. It is therefore important to consider what you would like to happen to your business in the event of your death, especially if you would like someone to continue running it. Your Will can grant others positive authority to carry on the business after your death, if this is your intention.
Whilst selling your business may be your retirement plan, you should always ensure that you have in place the following:
Gardner Leader can assist you with business succession planning along with other considerations such as tax saving measures that may apply.