• March 29, 2024
 What would happen to your business in the event of critical illness or even death?

What would happen to your business in the event of critical illness or even death?

There are thousands of small businesses in the UK, many of which are sole traders or firms that employ a small number of employees. With this in mind, planning for the future would surely be a high priority for most. Surprisingly, this does not appear to be the case.

In terms of the business founder or managing director being involved in a serious accident or suffering sudden ill-health, this is a scenario which could prove disastrous and push the firm into rapid decline, simply because no-one is able to take charge of the day-to-day affairs. Even if there were people who could do the work that the business delivers, you would need someone with the power to run the company and make important decisions to keep it running smoothly.

So, if the worst did happen, are your clients’ and even your own businesses prepared?

Around one million businesses across the UK are now exposing themselves to ‘serious financial risk’ through the absence of cover known as share protection insurance. This is according to a joint campaign launched by Legal & General and unbiased.co.uk, a service that helps individuals find financial advice.

Clare Harrop, of Legal & General, says: “Each business is of course different, but most small businesses have one thing in common – they rely on specific individuals to operate. It is therefore important that business owners ask themselves how the business would cope if they suddenly lost one of these individuals. These are questions that we find most business owners haven’t considered and they are not aware of the solutions available.”

Without a document in place such as a lasting power of attorney (LPA), anyone appointed to look after a small business for a period of time is likely to find it challenging. They would probably be unable to deal with the day to day business affairs such as banking, which could lead to unpaid wages and other priority bills being missed, or customers’ unpaid invoices never being pursued. Most other organisations including the local authority or utility providers are not legally allowed to discuss affairs with anyone other than the named individual, unless an LPA has been drawn up. This could make the simplest of tasks become difficult.

Is it a common occurrence in terms of your clients who perhaps run small businesses, seeking advice only once they find themselves in such a situation or does your firm adopt a pro-active approach to cover such scenarios?

Emma Myers, Head of Wills, Probate and Lifetime Planning at Saga Legal Services, says too few small business owners and managers have set up LPAs. “Any freelancer, sole-trader or small business owner or operator should think carefully about what would happen to their business if they became unable to do so, and what this would mean for them and their employees’ financial future,” she says. “Having an LPA would also alleviate most of the stress and cost to family members.”

  • Four out of five, or 81% of small business owners say they would like to pass on their company shares to specific beneficiaries in the event of them passing away, but almost half (44%) have yet to put any legal instructions in place to ensure these wishes are honoured.
  • A further third (31%) have a will in place but have failed to include instructions about their shares.
  • While 56% of small businesses across the UK say they have reviewed their Partnership Agreements in the last year, and 59% their Articles of Association, this means almost half have not.
  • More than a third (35%) of businesses admit they have never reviewed their Partnership Agreements since the business was started and a further third (33%) their Articles of Association.

Have you experienced of this type of problem with a client seeking advice on how to avoid or deal with such circumstances?

Please let us know your views by leaving a comment below.

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