As a Business Owner you need to protect your business interests – How does a Lasting Power of Attorney do just that?

Most people understand the benefits of a Lasting Power of Attorney (LPA):

It allows an individual to nominate someone to make legally based decisions on their behalf, if they become incapacitated in some way, or indeed are unable to be at home to practically manage their own affairs (In lockdown overseas for example, or on holiday in another country).

Less well known is the ability to put an LPA in place for a business.  This is especially relevant given the current health crisis (COVID-19), when the sudden illness of a business owner could have serious ramifications for the business, its workforce and the owner’s livelihood. 

Why put an LPA in place? 

As a business owner, if you become unable to make decisions for any reason, it could severely impact on a vast number of people and ultimately the fate of your business. 

Putting a business LPA in place ensures that a person you know and trust will take the reins immediately, and can begin to deal with the usual running of the business without delay or unnecessary costs.  Without an LPA the business would need to rely on the Court of Protection to appoint a deputy on your behalf, which is often a costly and time consuming process.  This would lead to an inability to access business bank accounts or make decisions for months, resulting in many serious problems.

Every person your business comes in contact with from: suppliers; creditors; clients; HMRC; VAT and employees, could all benefit from you having a trusted individual nominated to keep things running should you become incapacitated for any reason.  The people closest to you can also take peace of mind from knowing that there are measures in place to ensure the continuity of income from the business (from its continued operation) should something happen. 

Why are business LPA’s uncommon?

Aside from a lack of awareness of business LPAs, some business owners don’t have one as they fear that a temporary period of mental incapacity may lead them to permanently losing control of their business interests.  The Mental Capacity Act 2005 deals with this concern, requiring the person you appoint to ‘so far as reasonably practicable, permit and encourage the person to participate, or to improve their ability to participate, as fully as possible in any act done for them and any decision affecting them.’

Another reason for choosing not to have an LPA in place is an assumption that the Court of Protection will appoint a deputy. While this is true, it can also present some serious issues. Appointing a deputy can take several months, during which time, the decision-making processes and daily operations of a business, without leadership or direction from the top, can fall apart.  This is also an expensive process – the combination of the long timescale and costs can significantly impact a business. 

What can a business LPA be used for?

Once the business LPA is in place, the trusted individual can oversee a range of important business functions and operations on behalf of the business owner, unless restricted on page five of the LPA. 

These key business decisions can be made across a range of areas, including:

  • Business contracts
  • Sale or acquisition of business property
  • Paying wages, tax or VAT
  • Hiring or removing employees
  • Control and management of business assets
  • Managing business health and safety issues
  • Marketing
  • Litigation

For this reason, a distinction should be made in the LPA between running and working within the business, as LPA attorneys can only make decisions as authorised by the donor.

Without this distinction, you may not give adequate permissions to your trusted individual, resulting in the downfall of your business. 

As with a personal LPA for financial affairs, a business LPA may be used prior to the donor becoming mentally incapacitated. 

What you can expect?

Once you have decided to implement a business LPA, it is important to be aware of the process that will follow and the questions that will be asked before it can be prepared.   A thorough business evaluation will be conducted and it must be made clear why you want to a business LPA in place. 

The attorney’s suitability will then be assessed, and a business LPA separation clause drafted to exclude decisions about the donor’s personal financial matters.

Where applicable, a memorandum of wishes could also be drafted to ensure that the donor has clearly set out their wishes about how the attorney should operate the business.  This is standard practice with all of our clients.

As the donor, it’s important to think about and prepare answers for a number of questions, including how many businesses you have and if there are other business partners or owners.  It’s also helpful to make the assessor aware of plans for your business and you should any potential conflict of interest with the proposed attorney and provide detailed information about why they are a suitable choice to take control if needed. 

As the donor, you should bring the following documents to the initial meeting for assessment: 

  • Copy of your business plan
  • The partnership agreement or company articles
  • Trading figures for the last three years 
  • Details of any existing powers of attorney made
  • Details about the planned attorneys, who they are and why they have been selected

These questions are designed to confirm your (the donor’s) mental capacity and intentions, allowing our legal advisers to draft the appropriate clauses for the benefit of your business interests.

What makes a suitable attorney?

Choosing attorneys (you will need a minimum of two) is a big decision and it’s important to consider all of the key factors.  According to paragraph 7.8 of the MCA Code of Practice: “A donor should think carefully before choosing someone to be their attorney. An attorney should be trustworthy, competent and reliable. They should have the skills and ability needed to carry out the necessary tasks.” 

As the donor, you can sometimes be blinded by loyalty, making decisions based solely on the closeness of your relationship with the individual, however, remember that the attorney will also be responsible for the livelihoods of your employees and the effective running of your business, so they must be suitably qualified to undertake this important role for you. 

Before going ahead, take a step back and evaluate the magnitude of the decision. If the attorney has a limited understanding of the work involved or your business, then it may be not the right appointment. 

Of course, it is unlikely the attorney will have the same level of understanding and knowledge as you, but they must be competent in dealing with important business issues and know when to seek additional support. 

Separation clauses

When it comes to drafting separation clauses in an LPA, it is important to ensure that these are clearly and precisely worded so that the scope of the Business LPA is limited to the donor’s business affairs.

The donor can make a separate LPA for the management of their personal financial matters, which would include a similar separation clause excluding from its scope decisions about business matters.

For donors with only one business, it may be wise to have a specific business LPA clause.  On the other hand, donors with multiple businesses may decide to adopt an open clause that covers all their businesses or alternatively, they may make separate LPAs which appoint separate attorneys to handle each business accordingly. 

Of course, making this decision can be difficult if you have little experience of dealing with LPAs, so it’s best practice to consult our team of trusted advisers who can help you find the right solution. 

Make the arrangements now

If you arrange a personal LPA alongside a business LPA, then your personal LPA should stipulate that it does not cover your business affairs. Your business LPA must state that your nominated attorney has power only over your business affairs.

The choice of attorney to be appointed requires a lot of careful consideration. It is, therefore, important to seek advice when making this decision, and the other important factors to consider.

Ultimately, the long-term security of your business and employees are at stake. Without an LPA, you risk jeopardising everything you have worked hard to build over the years. 

Book a FREE initial meeting today, to talk through your options.  Call us on 01925 396122. Or contact us here.

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