Perils of a One Man Business
What would happen to my Business if I am ill or die?
Being in business on your own is often great – you have independence, no office politics and no one planning your day.
But what happens if for some reason you can no longer do the job?
With a broken arm or broken leg you may be able to rearrange work or get in subcontractors; but what will your loved ones have, to help them, if it is worse than that.
If you care and want to look after your customers and loved ones than it is a good idea to make some contingency plans – and I am not just talking about insurance.
You may say who cares, I will be dead – but unfortunately that may not in fact be the worst that can happen. It could be you picking up the pieces after coming out of that Coma!
A sole trader is one man business, the business and the person are one. If anything happens to that one person, then only the persons officially appointed can legally take over e.g. power of attorney during lifetime, executor on death or officially registered alternate in respect of professional services.
Please note that an executor is the person named in the will and can take over immediately, however if there is no named executor or will then a personal representative will need to be appointed to sort out affairs, which can take some time.
If there are no such individuals already appointed, then everything can fall apart, assets frozen, deals not fulfilled and the business fall into insolvency, before personal representatives can be appointed, who will then need to pick up the pieces.
This is the legal position, but recent high-profile cases have highlighted that access to assets may not be as easy as legal entitlement e.g. finding cryptocurrency can be like finding Blackbeard’s treasure! Of course there is nothing that can substitute for personal knowledge, so showing someone the ropes, or leaving clues can be crucial to the survival of the business and the handing on of assets.
Sole Director Shareholder
A limited company may also be a one-man business, with just one person both sole director and shareholder. Again if there is no one officially appointed then everything can fall apart. In particular, when a sole director dies there is no one to run the company, authorise new shareholders or be responsible, so new directors need to be appointed ASAP.
Shareholders appoint directors. If a shareholder dies then the shares need to be transferred to the beneficiaries before the new shareholders can be called to a meeting to appoint directors and with no director to authorise these new shareholders we can be in a catch 22 situation. A special clause, in the articles of most companies registered after 2009, allows executors to appoint new directors, other companies may need to apply to the courts, so companies should check their articles.
But what happens if the director is just incapacitated e.g. in a coma or missing?
Hence it can be a good idea to make your company no longer a one-man company e.g.
- Appoint a company secretary – officially an officer of the company, assistant to the director, who can authorise documentation, be a bank signatory, register beneficiaries as new shareholders and call a meeting to appoint new directors.
- Add another shareholder, even with just one share and then there is someone who can appoint a new director to carry on the business until beneficiaries can take over the remaining shares (which can take some time if there is no will).
On the plus side – involving family members does have tax advantages too.
If you would like to discuss this further, then do contact us.