The benefits of having a Lasting Power of Attorney (LPA) for individuals, both for finances and for health and welfare, are well known, but a less-often talked about scenario is what will happen in the event that a business owner is unable to make their own decisions in relation to the company. This is where a business LPA can come in.
What is a Business LPA?
A business LPA is a legal document that authorises a nominated person, or persons, to make decisions in relation to the specified business if the owner is unable to make decisions themselves. For example, if the business owner were to have an accident or illness that caused incapacitation, or even if they were abroad or otherwise uncontactable when an important decision needed to be made.
An LPA for business helps to ensure that a trusted person or persons can legally authorise things like paying business bills, payroll, and communicating with banks or professional services on behalf of the business, if the business owner cannot do this. It essentially enables a business to keep functioning and protects the business and its interests if you are unable to do that.
Without a business LPA being in place, people who want to make decisions about the business will need to apply to the Court of Protection for a deputy to be appointed so that they have the legal authority to make these decisions. This can be a complex, lengthy and costly process, with no guaranteed outcome. It is usual for application processes of this type to take upwards of six months to be resolved, which can leave the business very vulnerable in the meantime.
What types of business can have an LPA?
Whether a business LPA is suitable for your circumstances will depend on the type and structure of your company or organisation.
LPA for Sole traders
Sole traders and their business are not usually legally separate entities, which means that a business LPA or a personal LPA that relates to finances will usually be sufficient in the event that they are incapacitated. However, it can often be best to have separate LPAs for personal and business, to provide clarity over the scope and responsibilities of decisions that can be made for each area of life.
If there is no LPA in place for a sole trader, people such as family members or employees will have no legal right to make decisions in relation to the business, which can cause any number of problems.
LPA for company directors
For a private company director, there may already be provision for what should happen in the event that the director loses capacity in the company’s articles of association. However, if you are the sole director, with no provision outlined in the articles of association as things stand, a business LPA could be a good idea.
LPA for business partnerships
In partnerships that have two or more partners, there should be provision in the partnership agreement as to what should happen if one partner is not able to make business decisions due to incapacity. However, if this is not the case, or there are doubts about the provisions in place, a business LPA could be required. The wording of the LPA in these circumstances should ensure that there are no conflicts with the provisions of the partnership agreement.
Is it a good idea to have the same attorney or attorneys for a personal and business LPA?
The attorneys for managing your personal and your business finances and decisions may or may not be best suited to the same person or persons, depending on the individual situation. First and foremost, any nominated attorney needs to be someone that you trust and someone that is capable of making sound decisions if you are unable to.
For many people who are business owners, their family members might be an ideal choice of attorney for making decisions on personal finances or health and welfare, but they might not necessarily be a good choice for your business LPA.
Being an attorney on a business LPA is a big responsibility and having relevant business experience and the right skillset in that specific area can be a really great asset. Your loved ones might not necessarily fit the bill here, or you might not want them to have to take on business responsibility as well as personal responsibility.
In this case, you might want to consider a trusted business associate or a professional to be your attorney in your business LPA.
Talk to Gamlins Solicitors LLP about whether a business LPA is right for your circumstances. We can offer specialist advice and help ensure that your business is protected. Get in touch with our team to find out more.
Telephone: 01492 860 420
