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Dealing with business owner's incapacity

Like Arizona families, business must deal with the possibility that one of its members becomes incompetent to make important decisions. Business law allows for planning for the incapacity of an owner or principal and, when this occurs, the continuation of business operations and payment of employees and suppliers.

Incapacity can come from many causes. The Alzheimer's Association claims that 12 percent of individuals over 65-years-old in this country are afflicted with Alzheimer's disease. This rises to 45 percent of Americans over 84.

There are also other diseases that cause dementia. A person at any age may suffer an accident that causes permanent or temporary problems with memory, problem solving and judgment.

A business operating agreement may contain terms defining incapacity, who assumes control of operations and the handling of ownership interest. An owner can also execute a power of attorney appointing an agent to make business decisions on their behalf, if they ever become incapacitated.

In the operating agreement, all partners can help plan what happens to their interests in the business and who can make decisions on their behalf. This planning can help reduce stress and disputes among remaining partners, if their partner becomes incapacitated, especially for businesses with family ownership. Owners can select an agent who is experienced with this business and who work well with its owners and employees.

When a partner did not execute a power of attorney, and there is no operating agreement, a court will appoint someone to make decisions on that person's behalf and protect their interests after a conservatorship proceeding. This may be a time-consuming legal process.

Additionally, the appointed conservator may be a family member or other trusted associate who may not be aware of business operations or be compatible with the other partners. This can harm business operations. Business formation and operations should address this issue. An attorney can help provide guidance and draft valid and effective operating agreements and other legal documents.

Source: The Business Times, "Planning best option to deal with incapacity of a business owner," Shauna Clemmer, April 24, 2018

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