If you are the owner of a business, you should think of what may happen to your business if you can no longer work. There are ways and means to protect a business getting adversely affected due to the owner’s potential incapacity. However, the best way to do this is to ensure that you have plans in place before any incapacity strikes. Let’s look at what may happen to your business if you’re incapacitated and how you can make sure that you’re prepared for such an eventuality.
1) Prepare for the unexpected
As a business owner, you may be focusing on daily operations and near to medium-term growth. Even though this is important, you should also have the appropriate plans in place to ensure business continuity if you become suddenly incapacitated. For starters, your employees or your heirs may not have clear instructions on managing your company in your absence. Going for appropriate insurance coverage and having a strong succession plan for your business is vital to keep your business running if you are incapacitated.
2) Your business forms part of your estate
Estate planning is usually thought of as something to do to ensure that a person can provide for their family after their death and set out a way to distribute their assets. However, estate planning is equally important to take care of any unforeseen circumstances if a person becomes incapacitated or seriously ill. If someone is incapacitated, it means that they are not in a position to take care of their financial and personal affairs. It also means that they cannot create essential documents such as trusts or wills. Since a person’s business is included in an estate, you need to ensure that you’ve executed proper estate planning documents, including directions about how your business should run while physically and mentally fit.
3) Have a power of attorney in place
As a business owner, if you don’t have a power of attorney in place that states who will make business decisions in your absence, your potential incapacitation may cause considerable confusion. A business may be stuck on hold if they need shareholder approval. Also, what should happen if a company is about to be sold, you become suddenly incapacitated, and your written consent is required for the sale to occur? To ensure business continuity in the event of your incapacity, you should prepare a power of attorney, which is a legal document that authorizes another person to make decisions in your absence.
4) Have proper agreements in place
If your business has multiple owners, you should consider a buy-sell agreement. Such a contract outlines the agreed-upon plan for the company if an owner dies or becomes incapacitated. Some provisions to incorporate in a buy-sell agreement are:
- How to determine the sale price for the business and an owner’s interest. The agreement should also specify how the payment will be made.
- If the remaining owners will have the obligation or the option to buy the deceased’s or incapacitated member’s interest in the business.
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- Whether certain people will be blocked from participating or allowed to participate in the business.
Such a buy-sell agreement can be prepared and signed at the time of the creation of the company. Alternatively, a buy-sell agreement can be executed at any point in time during a business’s life. This agreement may either be a provision in another document or might be a standalone document by itself. Buy-sell contracts give shareholders, partners, or the company itself the chance to buy out the interests of a disabled or incapacitated partner.
In Summary
Having a proper plan for your business is vital to keep it going if you can’t stay actively involved due to illness, bad health, or unforeseen circumstances. Doing so will help ensure your business, co-owners, and employees can function as usual in your absence.
