Have you ever walked into another room only to wonder why you were there? How about misplacing your keys or forgetting a name? Most people have. Although it’s frustrating, it’s also normal.

But what if a person experiences such issues with short term memory as repeating stories or forgetting recent events? Maybe there’s difficulty performing even familiar tasks. These could be signs of more than just normal forgetfulness.

Unfortunately, the older we grow, the more likely our decision-making ability becomes impaired. According to the Alzheimer’s Association, 12 percent of Americans over age 65 have Alzheimer’s disease. At age 85, fully 45 perfect of individuals suffer from Alzheimer’s disease. These numbers only address the diagnoses of Alzheimer’s. Dementia also can be caused by other diseases or health conditions.

Being diagnosed with Alzheimer’s or dementia are not the only ways to lose capacity. A person of any age could suffer an accident that causes temporary or permanent issues with memory, problem solving, organization and judgment.

That means everyone should consider what would happen if they were to lose capacity. But there are specific things to consider when that person is a business owner. If a business owner loses capacity, how would operations continue? Who would have access to business accounts? Would vendors and employees get paid?

Planning offers the best option.
A business operating agreement can include provisions to define incapacity, state who takes over operations and how an ownership interest is handled. Additionally, owners can execute a power of attorney that designates agents to act on their behalf regarding business decisions if the principal doesn’t have capacity. In deciding who the agents should be, consideration should be given to who can work with the other partners and understands the business.

If the situation is addressed in the operating agreement, all partners are able to weigh in on what happens to their interests and who will make decisions in their stead. In addition, figuring out how the business will carry on if a partner is incapacitated will reduce stress and possible fighting among remaining partners. This holds especially true in a family run business. If dad loses capacity and has been the one who’s made all the business decisions, who takes over? What happens to his interest? Talking about these issues and putting the plan into an agreement can help avoid family fighting over how to continue.

What if a business partner never executed a power of attorney and there isn’t an operating agreement that addresses incapacity? If that’s the case, a court will have to appoint someone to make decisions on the partner’s behalf under a conservatorship proceeding.

In Colorado, a guardianship is a legal proceeding through which a guardian is appointed to make personal care decisions for an individual. A conservatorship is a legal proceeding in which the court appoints a conservator to manage and protect an individual’s assets. Guardianship and conservatorship procedures are similar and often requested at the same time by a petitioner. Guardianships and conservatorships are both initiated through the filing of a petition for appointment of a guardian and/or conservator, typically with the district court in the county where the respondent resides.

The appointment of a conservator takes time, though, and the person appointed will likely be a family member who might not be knowledgeable about the business. This will be detrimental to the continued operation of the business, and a partner or partners didn’t participate in the decision-making process.

No one wants to consider losing capacity. Planning for that possibility isn’t fun. But having a power of attorney and an operating agreement that address the scenario of a business partner losing capacity is like insurance. Maybe nothing will ever happen and you’ll never have to look at those provisions again after signing the agreement. But if something does happen, the business is prepared to carry on.