Is your company ready for disaster? Who will take over if you can’t run it?
You’re riding high as the sole owner of your own company, which is doing very well, the future looks very bright, and suddenly your lawyer asks you if you want your spouse to be a part owner. What should you answer?
Well what do you want to happen to your company if you suddenly die or become incapacitated? Sure, you can have a will that transfers everything to your spouse, but administering a will does not happen overnight. And a will doesn’t even apply if you’re “merely” incapacitated. No, if you don’t want your company to languish in case of a catastrophe, you need something more. What are your options?
1. Rely on the default rules as found in the law. The law does provide a default path to succession, but there are several steps to be followed, and in Virginia (at least) there is one gaping hole: the case of your incapacity in which no guardian or conservator has been appointed. If you are only temporarily incapacitated, your company would be rudderless and could collapse before you recover.
2. Make your spouse a partner. You could make your spouse a minority partner in the company, and your operating agreement can spell out who makes what kinds of decisions and under what conditions.
3. Power of Attorney. You could have a standing power of attorney that springs into effect only on your death or incapacity. The power could grant complete control over the company, or it could limit the power to certain decisions, or a combination with defined circumstances for either.
There are advantages and disadvantages to the approaches in #2 and #3 relative to each other. It’s best to consult your attorney for all the factors on this decision. But I recommend that you DO NOT rely on the default rules in state law to handle this important succession planning decision. There’s just too much uncertainty and delay in that path. Learn more about how to document partnerships at this blog post: About Partnership Agreements.
Entrepreneurs are going to save the world, and Argent Place Law wants to help. That’s why we are a team of entrepreneur-lawyers who provide Legal Business Counsel to Entrepreneurs just like you. Think how great will it be to have a legal team with entrepreneurial experience on your speed dial so you can call us up and say, “I’m thinking about business succession. Should I bring a family member in as a partner in my company, and are there any alternatives?” Call Argent Place Law to find out.