While large corporations often have back-up systems in place to allow for the absence of senior management, many small businesses do not. This article raises a number of questions and, because the answers differ for every business, gives few solutions.
Let’s look at business run as sole proprietors first.
While your bookkeeper might be allowed to write cheques and make electronic payments and transfers, she may not be prepared to make many of the decisions involving the business. This raises the question of whether or not the “second in command” (someone other than the bookkeeper) could run the business for a prolonged period of time. If so, does that person have the legal authority to sign cheques, enter into contracts and make day-to-day decisions which are part of the running of the business? If not, can your spouse make these decisions? If not, will you be happy with someone else’s decisions? Will your spouse be able to run the business long enough to sell it? Will your spouse be able to realize an adequate sale price if it comes to this?
While a power of attorney is a good start, it may not provide all the answers. Is there any insurance in place to support your family if you become disabled? Is there anyone in your business who knows what you do and how you do it?
Now let’s look at a business with a few partners, whether or not the business is incorporated.
Businesses owned by partners may run perfectly well if one of the partners is away for a short time – a few days or weeks. The remaining partner(s) have the comfort in knowing that the absent partner will be returning. In the case of minor decisions, the absent partner may be available by telephone or email. Alternatively, the remaining partners may have been delegated the authority to make decisions with the confidence that there will be no issue when the absent partner returns.
Things become more difficult when one of your partners becomes unable to participate in the management of the business for an extended period of time. This may be the result of serious illness (e.g. due to a stroke or mental illness) or prolonged absence in a remote location. Sometimes these events happen without warning.
Are there provisions in your shareholders’ or partnership agreement allowing for a change of business structure to accommodate a long-term absence? Is there a provision in the agreement that requires the interest of the absent partner be bought out after a certain period of absence from active management in the business?
Should a plan be put in place to allow decisions by a representative of the absent partner? Will the spouse of the absent partner be in a position to step into the void? Will the spouse of the absent partner trust the remaining partner(s) to run the business in a manner which is fair?
The wise business owner will understand the risks involved with ignoring the possible issues associated with unplanned, long-term absences. While it is true that it may not happen to your business, if it does, the results could be disastrous. The good news is that with advanced planning your business can survive those periods of time when the boss is gone.
Kellie Beasley is a partner with HGR Graham Partners LLP. Her practice focuses mainly on business law and not-for-profit and charitable law.