Safeguarding Your Business in the Event of Incapacity

Relevant For:

Business owners, sole directors/shareholders, and anyone with trusts or company structures in place.

Key Points:

• Incapacity of a business owner can disrupt operations if no formal safeguards are in place.
• An Enduring Power of Attorney ensures someone can legally manage your personal and business affairs during incapacity.
• A Company Power of Attorney can authorise others to act for the company, even after a director’s death.
• Control over trusts can be maintained via trust deed provisions and pre-prepared legal instruments.
• Legal advice is essential to tailor appropriate documents for your structure and jurisdiction.

Full Article:

Business owners are no strangers to uncertainty. Recent crises, whether natural disasters, economic shifts or pandemics, have underscored the need to be agile and prepared. But, there’s one crucial scenario often overlooked:

What if the business owner themselves becomes incapacitated?

When a business owner is suddenly unable to operate, the consequences can be swift and severe. Staff may keep day-to-day operations ticking over in the short term, but, critical decisions soon pile up such as payroll, banking access and contract approvals. Without proper authority in place, operations can grind to a halt.

To prevent this, business owners must ensure continuity through legally recognised mechanisms. Here’s what should be considered:

1. Enduring Powers of Attorney

This is essential for every adult, particularly business owners. An Enduring Power of Attorney (EPA) allows someone to make legal and financial decisions on your behalf if you lose capacity.

For sole traders and sole director/shareholders, this is critical. A sole director’s EPA can use shareholder powers to appoint a new director, ensuring the company can continue operating.

Even with multiple directors, it’s prudent to direct your EPA to ensure your interests are maintained on the board.

EPAs are governed by State or Territory law. If your business operates across jurisdictions, you may need separate EPAs in each one.

Without an EPA, control of the business may freeze until a Tribunal appoints someone to manage your affairs, which is a process that may take considerable time.

2. Company Powers of Attorney

Companies may appoint attorneys independently of their directors. A Company Power of Attorney enables decisions to be made for the company even if a sole director becomes incapacitated or dies.

This tool is especially helpful where a director wants to separate control between their personal and company interests. It also ensures business continuity while a deceased director’s estate is being settled.

3. Trust Control and Succession

Trusts play a major role in many business structures, so ensuring their continued control is vital.

Usually, a legal personal representative can step into the role of appointor if someone loses capacity, giving them control over the trust. Where possible, trust deeds should authorise attorneys to act on trust matters.

More complex planning, such as Deeds of Appointment on Event, Control Deeds or cascading appointments can further secure control and clarify intentions. These require legal drafting, but, provide stronger continuity.

If your business structure involves trusts, seek professional advice to tailor the right control measures for your situation.

In Summary

Incapacity planning isn’t just about personal care; it’s about business survival. Having the right powers of attorney and succession plans in place protects your operations, your staff and your legacy. Asset & Wealth Protection services are a core solution provided by our business accountants, so if you need help please let us know.