Understanding Modern Estate Planning for Business Owners
For many small business owners, family and business life is intertwined.
Where one starts and the other ends often overlaps. This is often the case with personal Modern Estate Planning and Small Business Modern Estate Planning. Here are 4 critical steps to help Business Owners understand their Modern Estate Planning responsibilities to their business.
Step 1 – All businesses need a backup plan
All business owners need a continuation plan for their business in case the Owner or Director is unable to continue to make business decisions, due to an unexpected sickness, injury or absence.
Modern Estate Planning for Business is really about understanding which business structures are seen as one-and-the-same with the business owner, and which business structures are seen as separate-and-distinct from the business owner.
Step 2 – Understand when you can appoint another to act on your behalf
When a business owner is a Sole Trader or part of a general Partnership, their personal control of the business can usually be exercised by others if needed through the use of a Power of Attorney or a Power of Enduring Guardianship.
Step 3 – Understand when you cannot appoint another to act on your behalf
When a business owner is a Director of a Company, the power of a company Directorship cannot be exercised by others or transferred or 'gifted' by a Will, a personal Power of Attorney or Power of Guardianship.
A separate Company Power of Attorney needs to be put in place by the Company to appoint another person (or company) to act on behalf of its Director, if they are unable to continue to make company decisions due to an unexpected sickness, injury or absence.
Step 4 – Company Directors must take action now
A company Director should have the company appoint someone to act on its behalf through a Company Power of Attorney to sign documents and manage the continuity of company affairs.
Download our Free eGuide
7 Myths About Modern
Estate Planning
For Business Owners
Modern Estate Planning – for business
- Modern Business is about continually making decisions.
- Modern Estate Planning is about planning for who can legally make those decisions for you, when you cannot.
Modern Estate Planning for Business is really about first understanding which business structures are seen as one-and-the-same with the business owner, and which business structures are seen as separate-and-distinct from the business owner.
The business structure makes the difference
This is because only some business structures can be manged using estate planning tools like a Power of Attorney or a Power of Enduring Guardianship. Other business structures, like a Company, a family trust and SMSF, cannot be managed via these planning tools and need their own special legal documentation to protect them if their business owners are unable to make decisions.
For Sole Traders and General Business Partnerships
You probably already know that a;
- Personal Power of Attorney is a legal document where an individual can appoint someone else to make key administrative and financial decisions for them, if they themselves were ever to be unable to make important decisions due to sickness, injury or absence.
- A Enduring Power of Attorney (or Guardianship) is needed to make medical and lifestyle decisions for another person when they have lost their own mental capacity to do so.
When you get your personal estate planning documents in place, make sure you consider the implications for your business decisions too.
For Company Directors and Multi-Owner businesses
If you’re a Director of a Company, you may not know that both a Power of Attorney or Enduring Power of Attorney (or Guardianship), does not extend to cover the duties of a Company Director.
- A Company Power of Attorney is required to protect the needs of a Company.
The Law: The Corporations Act 2001 (Cth) requires a company to have at least one director. Without a director, a company in breach of the Act, and the business may not be able to operate properly. For these reasons alone, you need to have a plan in place if you are not able to act as a director of your company.
What is a Company Power of Attorney?
A company acts through its directors and Company Directors sign documents and make decisions for the company.
- A Company Power of Attorney is a legal document where a company appoints a human (or another company or a combination of people and companies) to act and sign documents on the company’s behalf.
In contrast, a human POA (enduring or medical) only appoints humans to act on behalf of another.
Insight: A Director is the decision maker of a company and this role cannot be inherited, gifted or addressed under a personal Power of Attorney.
The Difference between Personal Estate Planning & Business Estate Planning
Personal Modern Estate Planning is about putting legal documents in place today where you nominate ahead of time, a person to act on your behalf later, if you cannot make decisions, due to an unexpected sickness, illness or absence. Business Modern Estate Planning is about building a business continuation plan if the business owner cannot make decisions, due to an unexpected sickness, illness or absence.
Modern Estate Planning for Business is business structure specific so the type of business structure in place determines whether personal estate planning documents or company estate planning documents is needed to build the business continuation plan.
- Sole Traders and Partners are usually seen as one-and-the-same with the business structure. This means their personal control of the business can usually be exercised by others if needed through the use of a Power of Attorney or a Power of Enduring Guardianship document.
- Company Directors are seen as separate-and-distinct from the business ownership. This means the power of a company Directorship cannot be exercised by others or transferred or 'gifted' by a Will, a personal Power of Attorney or Power of Guardianship document.
All these documents are available to be built and purchased through our Sapience Secure Customer Portal with the assistance of your financial adviser.
How we can help
This problem has a simple fix. If you are the sole shareholder and director of a private company, it’s time you planned for what will happen to your business if you cant make decisions due to sickness, injury or absence, lose the mental capacity or even unexpectedly pass away. If your Accountant or Financial Adviser hasn’t raised this question with you, perhaps you might need a new one.
Contact us for a confidential chat about your needs.
Related: Modern Estate Planning
- Singles - single and single again
- Families - couples, partners, defacto, married, possibly with kids, CNM
- Small Business Owners - side gigs, sole traders, partnerships and companies
