If you have a Lasting Power of Attorney in place intended to cover your personal affairs, it’s important to consider whether your chosen attorney(s) is capable of making decisions for your business.
A family member or friend may not be knowledgeable enough to deal with your business matters, therefore making a separate LPA for your business a sensible solution.
A Business LPA allows the business owner to appoint a suitable attorney to make decisions concerning their business interests when they are unavailable or if they have lost their mental capacity to manage their affairs.
Many businesses have crisis management plans dealing with computer hacking, theft or disaster but many do not consider or prepare for their decision making becoming incapacitated which can place their business in real jeopardy.
*Would your business be able to continue without you?
*If the business couldn't continue without you, who would deal with the wind up or sale of the business if you don't have an LPA in place?
*Would your family members cope with sorting out your business affairs if they were caring for you or would business partners or other professionals be more suitable to deal with matters ?
*Could your business survive for 6 months or more without anyone in control?
Without a LPA, an application would need to be made to the Court of Protection to appoint a deputy to manage your affairs. This is expensive and there is no guarantee that the Court will appoint someone you would have chosen. In terms of timescale this may also take longer than 6 months leaving your business in a very vulnerable position.
By making an Lasting Power of Attorney for your business it can help protect your business interests and those of your business if you become mentally incapable through illness or injury.
If you are a sole trader, it is likely that the business is owned and controlled by you. Whilst you may have an understanding amongst your employees or relatives of what would happen should illness or injury take you away from the business, in the eyes of the law this isn’t sufficient for them to act.
Without an LPA in place they will be unable to continue to deal with fundamental business affairs such as accessing bank accounts, paying loans, suppliers and salaries and fulfilling contracts.
A business LPA is an effective way for you to make provision for the continuity of your business, in the event that you are incapacitated.
If you run your business as a partnership, you may have a Partnership Agreement which includes provision for what would happen if you or your partner(s) became incapacitated. However, the vast majority of partnerships do not have a partnership agreement at all, and if they do, they do not make provision for incapacity.
It is important to ensure that any LPAs do not conflict with the terms of the partnership agreement (if there is one!) and review these agreements regularly as a change in the law with the addition of the Mental Health (Discrimination) Act 2013 means that certain clauses in relation to incapacity are no longer valid.
If you are a director of a limited company, the company’s Articles of Association (or Model Articles) may contain provisions for what would happen if a director became incapacitated unless you are the sole director of the company then the Articles of Association are unlikely to make provision as there would be no one else to continue running the company.
However, as above, it is important to review these regularly to ensure that they remain fit for purpose and effective.
Directors may also own shares in the company or even be the majority shareholder. This can cause additional problems if you do not have an LPA in place as any decisions regarding shareholder approval cannot be made. The terms of a shareholders’ agreement should also be considered.
If your business does not have the protection of a Lasting Power of Attorney, please contact us to discuss how you can protect your interests and those of your business.