Sole shareholder? Protect your business

Published by Sarah Ediss on 17 September 2019

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As an entrepreneur and business owner, it is crucial to put provisions in place to protect your business. Have you thought about what might happen, in the worst-case scenario, if you were to become incapacitated or die? No one is immune to health risk. Mental capacity can be lost in a multitude of ways, for example through illness or injury, and may seriously affect your ability to make decisions.

If your company has only one shareholder and director, and that person dies, contingency planning is even more crucial. There can be real practical problems in ensuring that your company can continue to trade. For example, it may have only one bank signatory and therefore payment of suppliers and employees won’t be able to be authorised. Your business may stop being able to function and performance can deteriorate very quickly – resulting in a significant loss in value.

You may have previously considered this issue and have arranged informal plans to deal with this scenario: but this is not sufficient in the eyes of the law. If the worst happens, the company needs someone with the necessary authority to take over the day to day running of the business.
Some key points to consider are listed below.

  • Check the company Articles of Association and shareholders’ agreement. Do they contain provisions to cater for death of a shareholder or director? Are they adequate for your company’s current situation and suitable for the future?
  • Ensure you have a will that includes provisions relating to the Company’s shares and that these are consistent with the Articles of Association.
  • Identify areas where the Company is solely dependent on you and consider alternative plans. For example: Who manages supplier contracts and arranges for them to be paid? Who knows the password to access the company’s computer systems? Who can access the business’s bank accounts? Is there any training that should be carried out so that the company can still run effectively if you were not available?
  • Consider a Lasting Power of Attorney (LPA). This enables you to appoint one or more people to make decisions on your behalf if you do not have capacity to do so. You choose a different attorney in relation to the company shareholding to the attorney you appoint for your personal financial affairs.
  • Once registered with the Office of the Public Guardian, a financial LPA enables your attorneys to deal with your property and financial affairs. However, the appointed attorney cannot act as a company director.
  • A director’s duties are personal and cannot be delegated under an LPA which is why it is important that the Articles of Association contain useful provisions such as if a company has no remaining shareholders or directors, as a result of death, the personal representatives of the last shareholder to have died can appoint a person to be a director.
  • You may also consider it prudent to arrange protection through key-man insurance to ensure funds are available as part of your contingency planning.
  • The value of your company accrues over time as a result of your hard work and investment. Some planning now, which would help preserve this wealth and ensure your business continues, is time well spent. Please ask us if you need any help to achieve this.

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