Most businesses plan for growth. Far fewer plan for the day a key person cannot work, a major customer leaves, the premises flood or the IT systems go down. A backup plan, often called a business continuity plan, sets out how the business would keep going. This guide covers the practical risks every plan should address and the legal documents that make it work in Scotland, from powers of attorney to shareholders’ agreements.
In brief
- A backup plan identifies what the business depends on and what happens if each of those things fails.
- The biggest risk for many small businesses is the sudden loss of an owner or director through illness, incapacity or death.
- In Scotland, a continuing power of attorney, a will, suitable articles and a shareholders’ or partnership agreement are the legal foundations of a good plan.
- Lenders, investors, insurers and larger customers increasingly ask about continuity planning as part of their due diligence.
- A plan only works if it is written down, shared with the right people and reviewed regularly.
Why a backup plan matters
Large organisations usually have detailed continuity plans. Smaller companies and start-ups often rely on one or two people who carry everything in their heads. That works until it does not. The consequences of being unprepared go beyond lost income:
- banks and investors look at resilience when deciding whether to lend or invest;
- larger customers check the resilience of their supply chain before awarding contracts;
- insurers consider risk management when setting cover and premiums;
- staff, customers and suppliers lose confidence if the business stalls after a crisis;
- if a sale is ever planned, a buyer will ask how dependent the business is on its owners. See our guide to preparing a business for sale.
People and key person risk
Start with the people the business cannot do without. Ask who holds key relationships, knowledge, passwords and authority to sign, and who could step in if they were away for a week, a month or permanently.
- Document key processes so they do not live only in one person’s head.
- Make sure more than one person can access bank accounts, systems and important accounts.
- Cross-train staff on critical tasks.
- Use restrictive covenants and confidentiality clauses in employment contracts to protect the business if a key employee leaves.
- Consider key person insurance to cover the cost of replacing someone vital.
Owners and directors: the legal toolkit
The loss of an owner or director is where legal planning makes the biggest difference. Without the right documents, a business can be left with nobody able to sign contracts, run the bank account or make decisions.
| Document | What it does | Why it matters |
|---|---|---|
| Continuing power of attorney | Appoints someone to manage your financial affairs, including your shares, if you lose capacity. | Without one, your family may need to apply to the sheriff court for a guardianship order, which takes time. It must be registered with the Office of the Public Guardian. |
| Will | Says who inherits your shares or business interest. | Without a will, the rules of intestacy decide, and the business may pass to people who do not want it or cannot run it. |
| Articles of association | Set rules on appointing directors and transferring shares. | Can allow alternate directors, deal with the death of a sole director and control who can become a shareholder. |
| Shareholders’ agreement | Sets out what happens to an owner’s shares on death, incapacity or departure. | Can give the remaining owners the right or obligation to buy the shares at a fair value. |
| Partnership agreement | Governs the partnership if a partner dies or leaves. | Under the Partnership Act 1890, the death of a partner dissolves the partnership unless the agreement says otherwise. |
| Cross-option agreement and insurance | Life cover on each owner, with an agreement to buy and sell shares on death. | Gives the surviving owners the funds to buy out the family of a deceased owner. |
Note that an attorney can exercise your rights as a shareholder but cannot act as a director in your place. If you are the only director, make sure the articles or a shareholders’ agreement provide a route to appoint a replacement quickly. Our guides to tailored articles of association and business succession planning explain these options.
Inheritance tax planning is part of the picture too. From 6 April 2026, 100% Business Relief is capped at £2.5 million of combined qualifying business and agricultural property per estate, with 50% relief above that, so larger business owners should review their wills and succession plans.
Money, customers and suppliers
Finance
Check whether the business depends on a single bank, lender or investor, how much headroom it has, and what other funding would be available in a crisis. Make sure bank mandates do not depend on one signatory.
Customers and suppliers
If one customer accounts for a large share of revenue, or one supplier provides something you cannot easily replace, that is a risk to plan for. Review your contracts: how much notice must the customer give, what happens if a supplier cannot deliver, and does a force majeure clause excuse either party? Our commercial contracts solicitors can review these clauses. Clear payment terms and an active approach to debt recovery also protect cash flow.
Premises, technology and data
- Premises. What happens if you cannot get into your premises because of fire, flood or another incident? Check your lease for rent suspension and termination rights if the property is damaged. Our guide to commercial leases in Scotland explains these clauses.
- Remote working. Can staff work from home, and do your policies and equipment support it?
- Technology. Back up data regularly, test recovery and keep software up to date. Cyber attacks are one of the most common causes of disruption.
- Data protection. Under UK GDPR, a personal data breach that poses a risk to individuals must usually be reported to the Information Commissioner’s Office within 72 hours, so your plan should say who does this.
- Documents. Keep signed contracts, company records and key passwords securely stored and accessible to the right people.
Insurance
Review your cover against your plan. Business interruption, cyber, key person and shareholder protection insurance can all fill gaps, but check the policy terms: business interruption cover often depends on physical damage, and many policies exclude certain events.
Building your plan
- List what the business depends on. People, customers, suppliers, premises, systems and funding.
- Assess each risk. How likely is it, and how badly would it affect the business?
- Decide the response. Who does what, and in what order, if each risk happens.
- Put the legal documents in place. Powers of attorney, wills, articles, shareholders’ or partnership agreement and key contracts.
- Share and test. Make sure the right people know the plan exists and how to use it.
- Review regularly. At least once a year, and whenever the business changes significantly.
Frequently asked questions
Do small businesses really need a continuity plan?
Yes. Smaller businesses often depend on fewer people and customers, so a single event can have a bigger impact. The plan can be short, as long as it is practical.
What happens to my company if I die and I am the only director?
Your shares pass under your will or the intestacy rules, and your executors will need confirmation from the court. Model articles allow your personal representatives to appoint a new director, but tailored articles and a clear succession plan make this much smoother.
Can my attorney run my company if I lose capacity?
An attorney can exercise your rights as a shareholder, such as voting, but cannot act as a director. Your articles or shareholders’ agreement should deal with appointing a replacement director.
How often should a backup plan be reviewed?
At least once a year, and after any major change, such as a new owner, a large new contract or a move of premises.
Want to make your business more resilient?
Our business solicitors put in place the shareholders’ agreements, articles, powers of attorney and succession plans that keep Scottish businesses running when the unexpected happens. Call 0141 471 9166 or book a free consultation.
Related services and guides
This guide reflects Scots law as at October 2026. It is general information rather than legal advice, so please speak to us about your own business.