All businesses protect their buildings and assets with insurance in the event that the worst should happen, but very often, no consideration is given to what would happen to the business if a key decision maker was suddenly not around. Without anyone appointed to take over the running of the business, even if only temporarily through illness, important deadlines and decisions may be delayed or even missed, putting the future of the business at risk.
A Lasting Power of Attorney (or LPA) allows the person (the donor), to appoint an attorney who will be able to make decisions and act for them if they were unable to make those decisions for them self. A Business LPA works in the same way, but for the business. It can be used either temporarily if a business owner is on holiday or away for business, or permanently due to an accident or an illness meaning that they are no longer capable of acting.
Ordinarily there are two types of LPA’s for individuals, a health and welfare document and a property and financial affairs document. There is also however, an additional document giving attorneys power to make decisions relating to the running of a business. A person can have both a personal and financial LPA as well as a Business LPA, but they should appoint attorneys that are suitable for each one separately as the roles are very different. A business attorney must be able to carry out the role of the donor in a Business LPA, and the donor should consider giving specific and detailed instructions on what powers their business attorney would hold.
Who is a business LPA is suitable for?
- a sole trader as they are not a separate legal entity to their business
- a person who is self-employed as they are not a separate legal entity to their business
- a director of a company if a director’s incapacitation is not covered by the Articles of Association or Memorandum of Association
- a partner within a partnership if a partner’s incapacitation is not covered by the articles of association or memorandum of association
If a company has multiple directors and one loses capacity (and thus the ability to make decisions relating to the business) then it is understandable that the other directors or partners may wish to remove them from the business long term. According to the Mental Health Discrimination Act 2013, a director or partner of a company who loses their mental capacity, cannot automatically be removed as a director of ‘said’ company. To be able to implement this, you need specific clauses in the company’s articles of association and we can advise on whether the company’s articles of association or partnership agreement cover incapacity.
If the company only has one director, or a business is running as a sole proprietorship, then having a Business LPA in place can allow them to appoint powers to someone to make decisions under these circumstances, which would mean the business could be wound up, sold, or even to secure the longevity of the business.
From a business protection point of view, anyone that is appointed as an attorney for the business must understand the direction that the director wishes the company to take. Regular consultations with proposed attorneys should be considered, so that they fully understand a director’s vision for the organisation. They should understand the company’s business plan, marketing strategy and mission statement.
We would also advise discussing the creation of the Business LPA with any other business partners to ensure they are aware of the appointment and that they understand the responsibilities that the appointed attorneys will have once the LPA has been registered and is in force. For some businesses with a board of directors, it may be a consideration for each member to have a Business LPA in place. It must be made clear to the appointed attorneys that they will only be acting for the donor’s share of the business, which will also mean that they will be dealing with someone else’s money and there are regulations in place to ensure that attorney act responsibly.
There is a lot to consider when considering Business LPAs and it is advisable to consider seeking professional advice. It is very important that whilst creating a Business LPA any company articles of association and partnership agreements are all reviewed and updated. We will do this in line with our Business Legal Services team as part of the fee.
Contact us today to see how we can help protect your most important asset.