When we, as entrepreneurs, start a business, our lives are filled with optimism, and it is often that optimism that drives the success of our business venture. Therefore, it may not occur to the optimistic business owner to think about what happens if, through a health crisis, accident, or other event which results in the owner becoming incapacitated, or, worse, dying, the business has no one to run it.
It is part of our job, as lawyers, to be pessimistic, and advise clients on plans for this possibility. I have explored with clients advice on a number of ways in which to deal with this situation:
For example, it is often the case that the business owner can develop a close friendship or association of trust with another business owner in the same industry. I have suggested, under those circumstances, a ‘buddy system’, whereby each business owner entrusts the other with the necessary information to carry on the business during an absence – whether temporary or permanent. The information can be freely given at the time the buddy system is set up, or can be kept in a place for which the access information can be given by a spouse or relative to that buddy if the circumstances arise where the help of that buddy is needed.
More importantly, the spouse or partner or closest family member that would be in charge if the business owner were to die or become incapacitated, must also be aware of what must happen. That knowledge could be simply to contact and trust the ‘buddy’, if there is one, or in fact could be with detailed instructions about how to shut down (or carry on) the business, if those circumstances arose.
Finally, of key importance is signing authority at the bank. Again, often it is only the business owner that has signing authority – whether entirely or for amounts in excess of certain limits. One person in that role can create huge problems if that person ‘disappears’ from the scene for whatever reason. It is important, therefore, for the business owner to consider taking steps to ensure that someone else can step into the breach and sign cheques and other bank instruments if the business owner is not able to perform that function.
These are a few suggestions to help when the unthinkable does happen. Once planned for, the business owner can continue to be optimistic and work hard for the continued success of the business.
This blog post was written by Ted Mann, a Partner in the Wills and Estates, Real Estate, Business and Bankruptcy teams. He can be reached at 613-369-0368 or at firstname.lastname@example.org.