Losing your capacity could mean losing your business

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Losing your capacity could mean losing your business

 

As a company director, sole trader or partner, you will spend the majority of your time growing your business interests. However, that investment could easily be destroyed if you fail to take steps to ensure that your business does not grind to a halt if you unexpectedly lose capacity.

 

We often assume that capacity is an issue for the retired. However, it is a sad fact of life that disease and disaster can, and do, strike at any age.

 

The loss of capacity of a director, partner or sole trader can cause unimagined problems. If an individual loses capacity, they can no longer operate a bank account.  A bank will be quick to freeze a business account if it learns that the director/partner or sole trader has lost capacity, especially if there is an overdraft. This is even the case if there are co-signatories. Furthermore, business contracts may become unenforceable and it may not be possible to enter into new ones.

 

The stark reality is that if a director/partner or sole trader loses capacity, staff and creditors may not get paid, accounts would be frozen, new business may be lost and existing client relationships may deteriorate. The damage to the reputation of the business and its finances could be catastrophic and it is not hard to see how quickly liquidation could loom on the horizon.

 

Surprisingly, the way to minimise the possibility of such a disastrous scenario is relatively simple. Many people are aware that they can appoint an attorney to act for them to deal with their personal affairs should they lose capacity, via a Lasting Power of Attorney (LPA). However, very few people realise that they can also put in place a separate ‘commercial’ LPA, appointing someone to make business decisions on their behalf.

 

Often, the person you would chose to step in to run your business and the person you wish to manage your personal affairs are different. Happily, it is possible, and usually advisable, to separate out the different functions and set up a commercial LPA in addition to your personal one.

 

At asb law we are experienced at helping business owners consider the potential risks and find appropriate solutions to minimise them. If you are a business owner and want to talk through your option then please contact Eleanor Gadd, Associate, Private Client.

Eleanor Gadd

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Published: 6 Sep 2017


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