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For many businesses, the risk that the owner or a board member is absent for a sustained period raises serious continuity questions.
If the senior decision-maker is unavailable, who is in charge and how are decisions made – decisions that could be critical to the survival of the business?
The best solution will vary for different businesses depending on the legal structure, type of ownership, articles of association, and a number of other factors. Larger businesses managed by a board of directors, or with an advisory or supervisory board to turn to, may be able to bridge the gap relatively smoothly. But for smaller businesses where the owner is the only board member, the path is less clear.
Fortunately, there are some key steps these businesses can take to minimise business continuity risks if due to absence:
Setting a safety button
All these strategies enable a business owner to ensure continuity if they are absent from the business. It shouldn’t be forgotten, however, that at some point it’s likely they will return, so there needs to be some form of legal process that enables them to do that.
The ‘safety button’ might be time limits on the power of attorney, for example, or a clause that means the owner retains the power to let go of the board even if he is not a board member, which prevents a situation where the new board member refuses to let them return.
The power of proxies
As well as formal legal structures for managing the business, there are a number of other steps businesses can take to ensure continuity in day-to-day operational matters.
One of the most common is proxies that delegate a power from the board to an individual. For example, a proxy for the head of finance to approve payments up to a certain amount, or for the head of sales to close sales up to a certain level.
Proxies are more limited than a power of attorney, but they are a relatively simple way of ensuring continuity in certain elements of the business, such as payments, sales, purchasing and signing contracts. Safeguards can also be built in to prevent misuse, such as requiring two specific people (for example, head of finance and head of purchasing) to sign and approve payments together.
Put it in writing
The final step in ensuring business continuity is perhaps the most important: make sure the chosen solution is formalised with the appropriate documentation. Even the most failsafe, carefully considered and structured business continuity strategy is worthless if it is not legally binding. And, of course, it goes without saying that the documents should be kept updated.
As a result of the Covid-19 crisis, these questions have come into focus for many business owners and managers. During a global health pandemic it seems more plausible to be absent from the business, however, it’s always important to be
prepared at any time so that you don’t get caught off guard and you have peace of mind for the future. To discuss business continuity issues or put a plan in place, please contact us using the details on the right.
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