A Lasting Power of Attorney for business should be considered by sole traders, partnerships and directors who are looking to take proactive steps to safeguard and protect their commercial interests for the future.
What is a Lasting Power of Attorney?
Simply put, a lasting power of attorney (LPA) is a legal document through which you appoint and authorise a chosen person or people (attorney) to make decisions on your behalf.
There are two types of LPA – those that deal with financial affairs and property and those that deal with healthcare matters. The two are nearly always completed together.
Read more about Personal LPAs
LPAs for business
As a business owner, it’s vital that you consider what would happen to your business if you were unable to make decisions for any reason. This could for example include if you:
- were incapacitated due to a medical condition
- had an accident
- If you were abroad on holiday or for business
If such a situation arose, who would authorise the payment of bills or invoices, service a business loan or ensure staff salaries were paid, and how would you reduce your business’ exposure to risk?
It’s best not to assume that a colleague or family member will be able to step in and gain the relevant authority to make decisions on your behalf. To protect your business interests, you should consider a business LPA.
Is a business LPA right for me?
Whilst a business LPA will be appropriate in most circumstances, it’s important to consider the type of business you own
Sole traders by definition rely heavily upon themselves and are also unlikely to have a separate legal entity between them and their business, meaning that appointing an attorney under a business LPA will be an effective way for to provide for the continuity of the business, in the event of being unable to make decisions.
Being in a partnership that has several partners, will require you to check the terms of the partnership agreement. The partnership agreement may already contain a provision to cover what would happen in the event of one of the partners becoming incapacitated. If such a provision exists, the continuity of the business would be adequately covered, making a business LPA unnecessary.
If you’re unclear about the provision made in the partnership agreement, or you feel that a business LPA may be required, you should seek advice on the wording of the LPA, to make sure it doesn’t conflict with the provisions in the partnership agreement.
Directors of companies: articles of association
If you are a company director, you will need to check the company’s articles of association. The termination of a director’s appointment in the event of incapacity will often be provided for in the articles of association – thus protecting the company’s interests. However, the company’s articles may not sufficiently provide for temporary incapacity (or other temporary absence), where termination would be disproportionate, unnecessary and potentially harmful to the business.
If the articles of association do not include such a provision, you may want to seek advice and consider including one.
For sole directors of small private companies, the articles of association are unlikely to simply terminate the director’s appointment, as nobody else would continue to run the company. In such circumstances, a business LPA would be appropriate.
Can an LPA cover both your personal and business affairs?
It’s possible to have a single LPA and appoint attorneys to administer both your personal and your business assets. It could however be inappropriate for the same person / people to make personal and business decisions on your behalf, due to a potential conflict of interests. You could consider making an LPA appointing certain attorneys to manage your personal assets, and others to manage your business assets, but this approach could lead to confusion as to the scope of the different attorney’s powers.
You can make more than one LPA, so we’d recommend you make one for your personal affairs and another to cover your business affairs.
To ensure clarity and avoid confusion, each LPA should contain specific instructions limiting the scope of the attorneys’ powers. The respective attorneys will be clear about their powers and will not infringe on each other’s responsibilities and decision making.
What happens if I don’t have a business LPA in place?
If you lose the ability to make business decisions in the future, and don’t have a business LPA in place, it may be necessary to apply to the Court of Protection for the appointment of a deputy to act on your behalf.
This can be an expensive process, and there’s no guarantee that the Court of Protection will select someone you would have chosen to act on your behalf. It’s also a lengthy process and could take more than 6 months, leaving your business exposed to unnecessary risk.
A business LPA should form an integral part of any business owner’s continuity planning.
Speak to our team today for advice and guidance – 01323 407555