Death and incapacity in a corporate context

For business interests, having only an LPA may not be enough: a wider review of the company’s structures and articles will generally be essential.

Events of recent months have focused many people’s minds that life is unpredictable and that death or serious ill health may not be quite as remote as we like to assume. For the business owner the concerns extend beyond whether or not the family will be provided for in the way that he or she might wish. There is also the worry of how the business can continue when one of its key personnel is no longer able to be involved. Many business owners will have spent the period since March simply trying to keep the business going, but it would also be prudent to plan for incapacity or death.

A lasting power of attorney (LPA) for property and financial affairs can be used to authorise an attorney to make decisions if the donor is no longer able to do so. Some business owners may prefer to separate responsibility for their business, and in particular for any shares in their business, from their personal financial affairs and this is possible by making two LPAs. 

It is, however, important to bear in mind that the responsibilities of running a company cannot adequately be delegated by an LPA in this way; the planning must extend to a wider review of the company’s articles and how it is set up to function in such a crisis. This can cause delays for companies with a sole director, so it may be worth considering appointing another director. This would also incorporate guarding against the difficulties caused by death of a sole director.

When control over the deceased’s assets passes to the personal representatives of the estate the powers under the LPA lapse. 

If a sale of a business or shares in a company is already in train there may be considerable delays whilst the personal representatives obtain the grant of probate so that they can evidence their authority to act on the deceased’s behalf. 

It may be possible to guard against some of these problems when drafting the articles of association or shareholders’ agreements by including, for example, drag clauses or compulsory transfer provisions. 

Whilst death or incapacity may seem unlikely when setting up or investing in a new business venture, it is worth asking ‘what if?’ and including appropriate protections where possible.