As a business owner, it is very important to consider what would happen to your business if you were unable or unavailable to make decisions. If this is left unclear, it can expose your business to risk and uncertainty. The most straightforward solution to this is to make a Lasting Power of Attorney (LPA) and appoint another individual to manage matters if you are unable to do so yourself.
What is a Lasting Power of Attorney (LPA)?
Contrary to common belief, family members do not have the automatic right to make decisions on your behalf when you are unable to. An LPA is a legal document that allows nominated attorneys to make such decisions on your behalf when you are unable to do so due to reduced mental capacity or illness. These LPAs can cover both health and financial matters.
What is a Business Power of Attorney?
A business LPA should be separate from your personal LPA’s. Once in place, a business LPA will allow the nominated attorney to manage the business when needed. This does not affect your right to continue managing the business, as long as you are capable and willing to do so. You may become unable to act if you have had an accident or have an incapacitating medical condition which prevents you from being able to manage the business’ everyday affairs.
Who are Business LPAs suitable for?
- Those who are not a separate legal entity to their business, such as a sole trader or someone who is self-employed.
- Those whose incapacitation is not covered by the Articles of Association or Memorandum of Association, such as a partner within a partnership or a director of a company.
- Those who travel a lot and find it difficult to manage certain aspects of the business whilst abroad.
Why do I need a Business LPA?
Although you may already have an LPA in place to look after your personal and financial affairs, this LPA may not be appropriate when it comes to dealing with your business affairs. As per the Mental Capacity Act Code of Practice, ‘An attorney should have the skills and ability to carry out the necessary tasks.’ For a business, this includes having the necessary skills for running a business, such as management of the needs/interests of employees, paying creditors, employees and tax, or investment planning. Without a business LPA, certain risks may arise, such as the freezing of bank accounts and intervention from a regulatory body, depending on the nature of the business.
If you become unable to make business decisions and do not have a LPA, then an application to the Court of Protection will need to be made. This application, if successful, will allow for an appointment of a deputy to act on your behalf. However, the appointed deputy, may not have been someone you would have chosen. Applying to the Court of Protection can also be an expensive and time-consuming process, taking up to six months to have a deputy appointed. Throughout this process, your business is exposed to vulnerability and uncertainty as there may be no one to manage the day-to-day finances and operations.
The cornerstone of an effective business plan and crisis management strategy should be a business LPA. A business LPA should be in place to safeguard the business, regardless of the health of the owner. In turn this reduces the impact on your family if there are reliant on the business income.
If you would like to speak to the Private Client team to plan ahead or to deal with an immediate need, please do not hesitate to contact us on 01603 677077. We are here to help.