Why anyone who runs a business should consider a power of attorney

Why anyone who runs a business should consider a Power of Attorney

Don’t just think of Powers of Attorney as part of planning for old age. For business owners and directors and sole traders of any age, they’re a key part of business planning

Think of this. You run a small a business or operate as a sole trader, and you are suddenly incapacitated by serious illness or injury. If this happened, who would pay your suppliers, manage the bank account, deal with contracts or insurance, file VAT returns or generally keep customers happy?

If your business bank accounts are in your name and you have no Power of Attorney (PoA) in place, no one would be able to take over managing the finances. This could be catastrophic for your credit record, business relationships and reputation, as well as for dependants relying on your income.

Worst-case scenarios

Any relative or colleague who wanted to take up the reins would have to apply to the courts for ‘Guardianship’ – a process which can take six months or more. Few businesses could survive a hiatus this long.

Worst of all, this would be happening when family and friends are already struggling with other practical and emotional issues around your illness or injury.

We apologise if we’re painting a gloomy picture here, but these things happen to small businesses day after day. Too many of them have no provisions for dealing with it, and therefore don’t survive.

“Think of a Power of Attorney as similar to insurance for your business – it’s something you hope not to use but are relieved to have if disaster strikes”

A simple solution

An effective way to protect your business is to set up a business PoA. It’s similar to a ‘personal’ PoA in that you authorise a chosen person to make decisions on your behalf, but it applies to the business only. The attorney doesn’t have to be the same person as your personal attorney. In fact, in many cases, different people will be better suited for each task.

How you set up a business PoA depends on whether you operate as a sole trader or have a company or partnership. Existing partnership agreements or company articles of association may already have provisions for what happens if a partner or director becomes incapacitated, so your power of attorney should be compatible with these. Advice is therefore important.

We all know that businesses don’t want to create more paperwork for themselves, but a PoA is a simple mechanism for preventing far greater legal complexity and cost. In this sense, it is similar to insurance – something you hope not to use but are relieved to have if disaster strikes.

Spreading the word can protect you too

All this matters not only to families, but to other businesses too. Even if it doesn’t apply to you, or you have a business PoA already, you probably have suppliers, clients or customers who aren’t protected. What would happen to your own business if they were brought to a standstill?

Therefore, we should all be having more conversations with colleagues and friends about business PoAs and their uses. Not hugely cheerful chat, to be sure, but important nonetheless.

Want to find out more?

Please give us a call to discuss your own particular circumstances .

Grant Johnson | Partner grantjohnson@lindsays.co.uk 01382 224 112

Dundee | Edinburgh | Glasgow 01382 224112 lindsays.co.uk