It is relatively unknown that in addition to making a Lasting Power of Attorney (LPA) for your personal property and financial affairs, you can also create a LPA to ensure your business interests are taken care of.
If you are a business owner, be it a sole trader, partner or director of a company, it is important to make provisions, should you ever be unable to make decisions regarding that business, due to mental incapacity or physical inability.
In such circumstances, issues that may arise include:
- Inability to authorise payment of bills and sign cheques
- Risk of the business bank account being frozen
- Unable to pay salaries
- Unable to enter into enforceable contracts
When deciding whether to make a business LPA, you must first consider the type of business that you own: sole trader, partnership or incorporated company. If you are a sole trader, the business is not a separate legal entity and you would have the full responsibility for the business and its applicable finances. It is therefore straightforward to create a business LPA for a sole trader, and the chosen attorney could step into your shoes to continue, or wind up, the business as appropriate.
If you are in a partnership, you will first need to check if there is a partnership agreement in place and whether that agreement makes provisions in the event of a partner becoming incapacitated.
Similarly, with an incorporated company the articles of association and any shareholders agreement will need to be reviewed, as they may already make provisions should a director lose mental capacity.
Including personal and business assets in the same LPA
It is possible to have one LPA that deals with personal and business assets. However, it may not be appropriate for the same attorneys to manage your personal assets and your business assets, as this may create a potential conflict of interest. In a LPA you can expressly state that you wish different attorneys to deal with different assets, but this can create confusion for the attorneys.
When a person creates a personal LPA and a business LPA, each document needs to include express instructions to detail the scope of the attorneys’ powers and provide clarity.
Appointing an attorney on a business LPA
It is important that you choose attorneys that are appropriate to carry out the tasks they will be required to perform. If you practise in a skilled and/or regulated profession, such as a solicitor or accountant, the attorney may need to have similar qualifications to you.
Once the business LPA has been registered, it allows the appointed attorney(s) to manage the business when needed. A business LPA can also be useful for business owners who travel abroad frequently, as the LPA can be used even when there are no issues with mental capacity. In such cases, this does not affect the owner’s right to continue managing the business, as long as they are able and willing to do so.
Consequences of failing to prepare
In circumstances where a LPA is required, but there is not one in place, an application can be made to the Court of Protection to appoint deputies to act on your behalf, however this can be a costly exercise and cause further delays, during which time your business may be vulnerable and at risk.
Life is unpredictable and it is therefore essential to plan for the future. Do not assume that a family member or a business colleague will automatically be able to make business decisions on your behalf. Instead, consider making a business LPA.