Many people have Lasting Powers of Attorney (LPAs) in place in case they become incapacitated, for example due to illness. However, a ‘business lasting power of attorney’ is less well known. Holly Gethin explains the main issues.
There are various reasons why you would want your personal and business finances handled by different people, should you become unable to manage them yourself.
For example, having the same person dealing with both your personal and business affairs could create a conflict of interests that could potentially render the LPA ineffective.
A second LPA, appointing a separate individual to look after your business interests, is often the solution.
The consequences of not having a business LPA
If you own a business and lose capacity, the bank will freeze the accounts very quickly. The consequences could be disastrous for your business – with no one having access to funds, businesses can – and do – fail.
Putting a business Lasting Power of Attorney in place allows you to appoint somebody that you trust – and, crucially – who understands your business to take over the day-to-day management as soon as they are required.
You can be as specific as you want regarding the attorney’s powers, but it is essential to ensure the company can continue operations.
Without a Lasting Power of Attorney, a Deputyship Order must be obtained from the Court of Protection, which can take upwards of six months and is very costly. This also means no one can make key decisions in relation to the business during this period – with calamitous consequences.
Reasons why you might need a business LPA
A business Lasting Power of Attorney is commonly put in place in the event of a medical condition such as dementia. However, there are other circumstances in which a business LPA is necessary.
You may, for example, be delayed abroad by events beyond your control, such as civil unrest or terrorism, or a natural disaster. Alternatively, you could have an accident, leaving you in an overseas hospital bed, and in no condition to make commercial decisions.
Why the type of business is important
Sole trader businesses that are not a separate legal entity from the owner are relatively straightforward. Appointing an attorney under a business LPA is an effective way for you to plan for business continuity if the worst should happen.
Where partnerships are concerned, you should check the partnership agreement. Some include provisions for a partner becoming incapacitated. If so, a business LPA would not be needed. If there is no such provision, and you decide to implement a business LPA, you should still take professional advice on the terms of the LPA, to make sure it doesn’t conflict with any other aspects of the partnership agreement.
For directors of limited liability businesses, it is well worth looking through your articles of association, which often provide for the termination of a director’s appointment due to a loss of capacity. This is often done to protect the company’s interests and if such a provision is not in your articles of association, you may want to include one.
Whatever your situation, the importance of taking professional legal advice to ensure all your interests are properly protected cannot be overstated.