The importance of wills and powers of attorney for small businesses
Pause for one moment and consider what will happen to your business if, tomorrow, you are no longer around, or lack mental capacity, to run it.
Possibly you have never given the issue much thought. You are likely to be in good company. Many business owners are usually too busy running their businesses to think about such morbid issues or the “what ifs”. However, it is important that such forward planning matters are addressed before the unexpected happens.
When someone dies, their property is disposed of in accordance with their wishes, as recorded in a will. There is considerable confusion surrounding the effect of a will. For example, it does not cover jointly owned property or property owned by trustees of a trust. If a person dies without a will (“intestate”), then the distribution rules under the Administration Act 1969 apply. These rules leave everything to the deceased’s next of kin in a fixed order. It is important to note that a deceased person’s estate does not automatically pass to their spouse or partner.
If you are a sole trader, you may wish to give your business to your child or, alternatively, provide for an option to purchase your business in favour of one or more children. If you own shares in a company you may wish to gift those shares to your spouse or child. They can then sell them or appoint a director and continue to trade. On the other hand, if the shares are owned by trustees of a family trust, you could consider preparing a document called a “memorandum of wishes” which outlines a wish for the trustees to continue running the business and any special provisions associated with it.
If you do not have a will, or a memorandum of wishes, then your business may not be disposed of, or dealt with, in accordance with your wishes.
Another planning tool is an enduring power of attorney. An enduring power of attorney in relation to property is a document where you appoint a property attorney(s) to manage your property affairs, generally if you cannot. However, an attorney must not at any time while you are mentally incapable, act to the benefit of the attorney or of a person other than you unless you have specified a power to so act in the document.
It is important to note that an enduring power of attorney in relation to property only relates to your property and not that owned by a company or trustees of a trust. However, if you are a shareholder in a company and you lose mental capacity, your attorney, subject to the company’s constitution, can exercise your rights and powers in relation to the appointment of a director.
Under the Companies Act 1993, and subject to its constitution, a company may appoint a person as its attorney either generally or in relation to a specified matter. This might be a useful instrument to have in the event of a sole director/shareholder losing capacity or for any other reason being unavailable.
Accordingly to a survey in 2011 the average age of business owners in New Zealand is estimated at 58 years. If you have never considered these matters before, there’s no time like the present.
Bryce Williams is an Associate with Gibson Sheat Lawyers specialising in private client work. To consult Bryce regarding any of the matters covered in this article, please call him to make an appointment on +64 4 916 6436, or email firstname.lastname@example.org.
The information contained in this article is of a general nature. No liability is assumed for any losses suffered by any person relying directly or indirectly on this information. Before acting on any information in this article, it is recommended that you seek our advice.