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How Business Owners Can Benefit From Lasting Powers of Attorney?

A Lasting Power of Attorney (LPA) made for business purposes, allows the donor/business owner to appoint a suitable attorney to make decisions concerning their business interests for situations when they lack mental capacity to do so. As a business owner, you must consider what would happen to your business if you were unable to make decisions.

This may be if:

  • You were to have an accident
  • Endured a long hospital stay
  • Suffered a brain injury
  • Developed dementia
  • Suffer a medical condition that incapacitated you

In such circumstances, someone would have to authorise the payment of bills, sign cheques, run the business or pay salaries or the business would be at risk of closure. In fact, if no business LPA is put in place, your business at risk of several things. If you lack capacity, banks will not allow a bank account on which you are named to be used, meaning the bank account can be frozen in order to protect you as a vulnerable adult. If a bank account has an overdraft, the chances of the bank freezing it is even greater. It cannot be assumed that a family member or business associate would automatically gain the authority to make these decisions on your behalf. To protect your interests, and those of your business, you should consider making a business LPA.

If you are the owner of a business that deals with legal matters or any other regulated services, then if you lack capacity there could be professional implications resulting in the intervention of a regulatory body. Contracts signed by a person with capacity could become unenforceable if they become incapacitated in the future. Paying creditors, employees or HMRC becomes difficult. Any day to day running of a business is generally untenable with a businessperson who lacks capacity. By appointing a business LPA, these issues can be protected against.

If there is no business LPA in place an application should be made to the Court of Protection to have a deputy appointed. This can take months or even longer. During this time, the business is exposed and vulnerable. Many business LPAs are used to formally retire the incapacitated business owner. This is usually in the business’s best interests.

The Scope of a Business LPA

A Business LPA allows you to appoint a person of your choosing, someone that you know and trust, as your ‘Attorney’. You decide how much power your Attorney will have. Examples of the types of powers that you could grant include:

  • The authority to sign cheques;
  • Decisions over the day to day running of the business;
  • The ability to hire and dismiss staff;
  • The ability to make decisions surrounding suppliers and payments to them;
  • The right to deal with professional bodies such as accountants and lawyers on your behalf.

LPAs As A Sole Trader

If you are a sole trader, you are your business. It is not likely to have a separate legal entity from you. Appointing an attorney under a business LPA will therefore be an effective way for you to make provision for the continuity of your business, should you become incapacitated.

LPAs In A Business Partnership (general partnerships and limited partnerships)

There are effectively two types of partnership governed by either the Partnership Act 1890 or the Limited Partnerships Act 1907. Your partnership agreement may contain provisions relating to the incapacity of the other partners. Provisions that remove partners who lack mental capacity may breach the Equality Act 2010. In order to manage a potential situation with a partner who lacks mental capacity and to reduce the risk of discrimination, the partners should each consider putting in place a business Lasting Power of Attorney. This might involve appointing attorneys from amongst themselves.

LPAs In A Business Partnership (limited liability partnerships)

Limited liability partnerships (LLPs) are governed by the Limited Liability Partnerships Act 2000. This states that some or all of the partners or members limit their liabilities meaning one member may not be responsible or liable for another member’s misconduct or negligence.

As with partnerships, LLP members may wish to appoint either themselves or independent third parties as their attorneys.

LPAs For Directors Of Companies: Articles of Association

If you are a director of a company, you must check the company’s articles of association. Articles of association often provide for the termination of a director’s appointment in the event they lose capacity. This would protect the company’s interests. If such a provision is not included you may want to seek advice and consider including it.

If you are the sole director of a small privately owned company, the articles of association are unlikely to simply terminate your appointment as there would be no one else to run the company. It is in these circumstances that a business LPA would be appropriate.

What If I Don’t Make A Business LPA?

If you do not make a business LPA and you become incapacitated, it may become necessary for another person to make an application to the Court of Protection in order for a deputy to be appointed to act on your behalf. This can be an expensive process and there is no guarantee that the Court of Protection will choose the same person that you would have. The drawn out process could mean it takes more than six months before a deputy is appointed. During this time your business is vulnerable and at risk.

It should be part of any business owner’s plan and crisis management strategy to consider making a business LPA.

Things To Consider When Making A Business LPA

  • Commercial LPAs are different to normal LPAs that deal with your personal finances and affairs. They represent an essential element of your business continuity planning.
  • Review the company’s articles of associations, and the partnership or shareholder agreements.
  • Identify a suitable attorney. This should be someone you trust and who you know to be capable of doing the job, someone who is familiar with the business, and has a similar business outlook as you.
  • Once in place, the LPA will allow your attorney to make financial decisions on your behalf. This might include buying and selling stock, organising insurance, accessing bank accounts, opening and closing other accounts, investing assets, and dealing with HMRC and so on.
  • Before your attorney accepts their role, make sure they fully understand the responsibilities. They should take out their own personal liability insurance to ensure they are protected whilst acting on your behalf. They must also commit to follow other industry specific legislations, regulations and policies too.

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