How to safeguard your business in any given situation

Effective management and ongoing development are crucial to the success of a business. But what happens if the business owner is unexpectedly incapacitated due to an accident or a severe illness? Such unforeseen events can thrust a business into crisis, even if a successor has already been chosen.

To ensure that your business remains stable and can operate in unforeseen situations, it's advisable to implement certain safeguards. These may include appointing a suitable deputy, drawing up a contingency plan, or strategically planning your inheritance to secure your heirs’ financial future.

The following six risk prevention measures should be considered:

1. Appointing a deputy

To ensure your company always has the capacity to act, it’s crucial to have a clearly defined deputy. This individual should not only be familiar with the company's primary concerns, but also have the necessary legal authority to seamlessly assume your responsibilities.

Granting a power of attorney, such as through a single procuration, enables the deputy to execute a broad range of legal actions on the company's behalf. The power of attorney can be restricted to specific business areas.

2. Power of attorney for shareholders and your bank

A shareholder power of attorney permits a trusted individual to attend annual general meetings, vote for board members, and vote on significant company decisions, among other shareholder responsibilities. A continuation clause in the power of attorney can ensure there’s no gap until your advance care directive is validated if you’ve set one up. Depending on the bylaws, third parties or only other shareholders may be authorized as deputies.

A power of attorney for your bank authorizes your deputy to carry out financial transactions on your company's behalf. This access to liquidity is beneficial for maintaining your company’s solvency.

Additionally, a shareholder agreement may be useful. While a shareholder power of attorney designates your deputy, a shareholder agreement regulates the transfer of your shares in the event of incapacity or death. Among other things, this agreement may stipulate the right for other shareholders to purchase your shares, in which case you or your heirs will be compensated through a pre-determined financial settlement.

3. Setting up an advance care directive

An advance care directive can be set up voluntarily and comes into effect in the event of your incapacity. It authorizes a person of your choice to represent you, thereby avoiding the appointment of a guardian by the authorities. Beyond medical matters, an advance care directive also governs the management of your assets and can facilitate the seamless continuation of your business. For instance, akin to a shareholder power of attorney, it can be used to determine who represents you at the annual general meeting and who can decide on the appointment or dismissal of board members.

4. Management of the estate by an executor

Your business is often your most significant asset. Therefore, it’s crucial to establish what happens to your shares upon your demise.

When a married person passes away, an estate must first be divided according to matrimonial property law. Unless otherwise specified, the law of accrued gain applies. This that upon death, the surviving spouse is entitled to half of the assets accumulated during the marriage. Depending on the circumstances, this may also impact the company.

If there are multiple heirs, the entire estate, including the deceased's company, goes to the community of heirs. In some cases, it can take months or even years for the estate to be divided. During this period, the company's operational capacity may be restricted, as the community of heirs can only make decisions unanimously.

An executor can prepare the division of your estate according to your wishes and manage it in your best interest. This can include, for instance, the management of shares, including voting rights. This ensures that your company can continue to operate after your demise.  

5. Assess your retirement benefits

As an entrepreneur, it is important to consider the financial benefits you will receive in the event of a long-term disability due to illness or accident. Equally important is understanding benefits your dependents can expect in the event of your death.

Therefore, it’s important to review whether the current benefits of the various pension schemes (1st, 2nd and 3rd pillar) meet your current needs: Are the benefits tailored to your situation? Does your partner need to be actively registered to receive a pension? Are the legal requirements met?

Additionally, a life insurance policy may be a suitable tool to provide optimal coverage for your family or to provide your business partner with the necessary liquidity to acquire your shares.

6. Ensuring access to important documents and data management

Securing access to crucial data, documents, and passwords is also vital to your company's operational ability.

It’s advisable to conduct regular backups and use secure cloud services to store all business-critical data. A password manager can be used to safeguard all your credentials.

You should also keep all important documents in a secure and easily accessible place. This includes your power of attorney, prenuptial agreement, will, living will, and other important instructions and legal documents. Inform your trusted third parties about how to access them in an emergency.

Conclusion

Thoughtful and proactive planning can significantly contribute to the long-term sustainability of your business. By appointing a trusted third party as your power of attorney and deputy, ensuring access to crucial data and documents, and safeguarding your family’s interests, you can ensure that your business remains stable and operational in your absence.

Do you have any additional questions about risk prevention as an entrepreneur? We're here to offer personalized support tailored to your needs. Schedule a non-binding consultation with our experts today.  

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