As a business owner, it’s important to consider what would happen to your business if you were unable to make decisions.

This may be if:

  • you were abroad on holiday or for business
  • you were to have an accident
  • mental incapacity

In such circumstances, who will authorise the payment of bills, sign cheques, service a business loan or pay salaries? It should not be assumed that a family member or a business colleague will gain the authority to make these decisions on your behalf – this assumption could leave the business exposed to risk.

What is a Business LPA?

A Business LPA is a property and affairs LPA restricted to only give the attorneys authority over a certain business of the donor. It will allow the attorneys to make decisions regarding that business in the event that the donor loses capacity, or alternatively to make decisions whilst the donor still has capacity with their authority.

It is generally recommended that a business LPA is created for each business owned by the donor. An LPA restricted to business affairs in general is likely to be considered too vague, we should always be as specific as possible.

A Business LPA will be appropriate in most circumstances, but it’s important to first consider the type of business you own:

Sole trader

If you are a sole trader, your business is not likely to have a separate legal entity from you. This means that appointing an attorney under a business LPA will be an effective way for you to make provision for the continuity of your business, in the event that you are temporarily or permanently incapacitated.

Partnerships

If you are a partner in a partnership that has several partners, check the terms of the partnership agreement. Some partnership agreements may already include provision for what would happen should one of the partners become incapacitated. If such a provision exists, it may already adequately provide for the continuity of the business, in which case, a business LPA may not be necessary.

However, if you’re in doubt about the provision made in the partnership agreement, or you feel that an LPA may be required, you should seek advice on the wording of the LPA, to ensure that it doesn’t conflict with the provisions already made in the partnership agreement.

Directors of companies: articles of association

Directors of a company should check the company’s articles of association. In some situations, articles of association will provide for the termination of a director’s appointment in the event that the director loses capacity. This is often done to protect the company’s interests. If such a provision is not included in the articles of association, you may want to seek advice and consider including such a provision but do take professional advice due to the Mental Health (Discrimination) Act 2013.

If you are the sole director of a small private company, the articles of association are not likely to simply terminate the director’s appointment, or there would be no one else to continue running the company. In such circumstances, a Business LPA would be appropriate.

The responsibilities of the Business LPA Attorney

The Business LPA is made specifically to allow the attorney to make decisions on behalf of the donor if they are unable to do so in unforeseen circumstances such as an accident which causes incapacity or a prolonged trip abroad. The powers of the attorney are limited to handling business affairs only.

In these circumstances, the attorneys appointed in a Business LPA would take on the responsibilities required to keep the business running such as signing and authorising payment of wages and bills.

Why make business LPAs?

By creating a business LPA in advance, you are able to ensure that other people can continue to make decisions on your behalf for the business if you lose mental capacity.

A person without capacity cannot enter into lawful contracts. Sole traders will no longer be able to sell goods or services. For partnerships or companies, this may destabilise the running of the business.

If a person who is a signatory to a business account loses capacity and does not have an LPA in place, the bank may freeze that account, which increases the risk that loans or overdrafts could be recalled. An application would need to be to made to the Court of Protection to remove that person as a signatory as otherwise it would not be possible to remove that person without their permission.

Along with the protection of the business from loss of capacity, there are other benefits to using a business LPA. It ensures that decisions regarding the business can still be made if the donor is on holiday, the donor is ill or off on long term sick or the donor wishes to semi-retire.

 The creation of the business LPA should be treated as a business expense and therefore should be payable from the business rather than a personal expense of the donor so it’s worth speaking to your accountant regarding this.

Considerations when making business LPAs?

The appointment of attorneys needs to be carefully considered. The appointment needs to be based not only on trust, but also if they are capable of dealing with the business. For example, the donor will need to consider if their chosen person is familiar with the business, or at least the market of the business, along with sharing the same business ideas as the donor to ensure they act in the best interest of the donor and the business.

The attorneys may not necessarily need to understand all of the day-to-day work activities of the business as, using their authority, the attorneys may reassign the donor’s day-to-day work to another person but retain the managerial functions.

What can happen if you do not have a Business LPA?

If you no longer have the capacity to make decisions in the interests of your business and a Business LPA has not been put in place and/or your company documents do not make provision for such a situation, an application for a deputy to be appointed to act on your behalf may need to be made instead.

The disadvantages of a Deputy application

This could involve the Court of the Protection and the process is much more cumbersome, costly and time-consuming. For example, in many cases, it can take at least twelve months for the legal process to complete, which can leave your business in an uncertain position during that time.

There is also the added risk that the Court may not necessarily appoint the people you would choose.

What are the benefits of having a Business LPA?

As well as ensuring a seamless continuity of the day-to-day running of the business, it will provide certainty for those working in the business and third parties who have an interest, such as banks and creditors being paid on time. It also provides clarity and peace of mind that your Business attorneys will be people you have chosen personally.

Can one LPA manage both business and personal affairs?

This is possible but not always recommended as it could cause things to get complicated.

It is recommended to have a separate LPA to look after personal financial affairs. This is often recommended, as the people who would be capable of looking after your personal affairs may not necessarily have the required level of business acumen to look after your business, and you may not wish for someone who is suitable to look after your business to be involved in your personal affairs.

 

For advice on requirements for a Business LPA just contact the team - call 01522 500823 or email [email protected]