Menu
Part 1 of this conversation covered the personal protection side of business planning: insurance, lasting power of attorney, and the single director risk. Here the focus shifts from the what ifs to the practical steps that resolve them.
Two areas come up consistently when Edith Woodward talks to business owners about protecting what they have built. First, the planning documents that ensure the business can continue. Second, the professional team needed to make those documents work together. Both are covered below.
If your business partner dies, their shares in the company pass to their spouse by default. Are you prepared to run the business alongside that person? It is a question most business owners have never asked themselves, and the answer is rarely covered in a standard shareholders agreement.
These two terms are often used interchangeably. Edith draws a clear distinction between them.
Contingency planning
This answers the immediate question: what happens right now if something unexpected occurs? Who runs the business today? Who has authority to access accounts, contact clients, and manage staff?
Without a contingency plan, an emergency event leaves the business without clear direction at the moment it needs it most.
Succession planning
This answers the longer-term question: what is the intended future of the business? Who takes over? What are the ownership and management arrangements going forward?
Both documents need to exist. A business prepared for succession but not for emergencies is exposed. One prepared for emergencies but with no succession plan has no roadmap for what comes next. Neither is enough on its own.
When a person dies, their assets pass under their will or the rules of intestacy. For shares in a limited company, that typically means the shares pass to their spouse or estate. The surviving business partner may then find themselves legally required to run the business alongside someone they have never worked with and potentially disagree with on every key decision.
What a shareholders agreement can do
Pre-emption rights, buy-out provisions, and death or incapacity clauses can all be drafted into a shareholders agreement. Together, these determine what happens to shares when a partner dies, becomes incapacitated, or wishes to exit. Every business with more than one director should have one.
Without this document, the default rules apply. Those rules exist to cover all companies in all circumstances. They are not designed with your business, your relationships, or your intentions in mind.
For businesses that are not limited companies
The equivalent document is a partnership agreement. The same what-if clauses apply: what happens to a partner's share when they die? Who has authority to act? What are the buyout arrangements?
Default partnership law fills the gap where no agreement exists. Like company law defaults, those rules are general. A well-drafted agreement is specific to your situation.
For businesses that operate as partnerships rather than limited companies, the equivalent document is a partnership agreement. The same what-if clauses apply. What happens to a partner's share of the business if they die? Who has the authority to act? What are the buyout terms?
Without a partnership agreement, the default rules of partnership law apply. Those rules are not designed with your specific business, your relationships, or your intentions in mind. A well-drafted agreement is.
This applies to everything covered in this two-part series. Intentions, conversations held with a partner, and plans that exist only in memory cannot be acted on when they are needed.
Putting plans in writing requires three things. A solicitor makes the documents legally binding. An accountant ensures the tax implications of any arrangements are correctly structured from the outset. A financial advisor covers the wider picture where personal and business wealth need to be considered together.
Getting the documents themselves done is the straightforward part. Ensuring the three professionals are working from the same information, rather than in isolation from each other, is where the real protection comes from.
The professional team
Edith describes the ideal as a trusted team of advisors working together rather than separately. Solicitor, accountant, and financial advisor, all aware of each other's involvement and coordinating on your behalf.
That coordination matters most when something unexpected happens and decisions need to be made quickly. If the professionals already have a working relationship and the relevant letters of authority in place, the process is faster, smoother, and less stressful for the people dealing with the situation.
Letters of representation
Carthy Accountants holds letters of representation with solicitors they work alongside. This allows direct communication between the accountant and solicitor on a client's behalf without every conversation having to go through the client first.
When something unexpected happens, that coordination already exists. The businesses that come through difficult events best are not always the most resourced. They are the ones with the right plans and the right relationships already in place.
Protecting a business properly is a team effort. It needs the right documents, the right people, and the right conversations, all brought together before they are urgently needed rather than after.
The process is more straightforward than most business owners expect. The hardest part is starting. If you would like to talk through what succession and contingency planning looks like for your business, we would love to help.
Get in touch: carthyaccountants.co.uk/contact
A short conversation now can protect everything you have worked to build.
