Firms facing financial crisis without succession planning
Businesses with a sole shareholder could face an uncertain future unless they put plans in place in case of death, a Shropshire lawyer has warned.
Margaret Rowe, a Partner in the Wills, Probate and Lifetime Planning team at FBC Manby Bowdler, said the recent case of a Lancashire firm that faced a financial crisis after the death of its sole director should act as a warning to other businesses.
Lancashire Cleaning Services had its bank account frozen when its director died, leaving salaries and creditors including HMRC unpaid.
As no provision had been made to allow executors to appoint a director or replace him on the company’s register of members, the High Court had to grant an emergency order to allow this to happen before probate had been granted.
Margaret said: “The High Court pointed out that this was an exceptional case and your business might not be so lucky.
“It’s a salutary lesson to all sole shareholders that you should make sure someone can run the firm without you. You should make it clear in your will the beneficiaries who will inherit your business and ensure that the company’s articles of association give the correct powers to allow executor/beneficiaries to run the business during the administration period.”
She said business owners should also have a Lasting Power of Attorney in place in case of sudden incapacitation.
“An LPA is important for anyone as you could be incapacitated at any time but it’s especially significant for business owners, whether you’re a sole trader, have a business partner or are a company shareholder.
“Even if you have a team of people working for you, they may not have the authority to do things like pay employees or suppliers and that could put your business under serious financial strain.”
Margaret added: “It should be someone who has a sufficient understanding of the business and you must ensure the appointment wouldn’t conflict with the running of the business or cause voting issues.
“A company shareholder needs to look at it alongside the Memorandum and Articles of Association of any business but a legal adviser can help with that.”
For more information regards Powers of Attorney for your Business, you can contact Margaret on 01952 208433 or firstname.lastname@example.org
< Back to Listing