As the owner of a business, responsibility for financial and business decisions ultimately lies with you. Who would make those decisions if you were unable to? Making a Lasting Power of Attorney is the only way to ensure that the responsibility for running your business passes to a person of your choosing.
Whatever your plans for the future of your company, it is wise to consider what would happen if you were no longer able to make the important decisions. This could happen if:
- you became mentally incapacitated
- you had an accident
- you were abroad on holiday or for business
In such cases, someone would need to step in to carry out the tasks that only you, as the business owner, would normally do, such as authorising the payment of bills, signing cheques and paying wages.
You might assume that a family member or business colleague would have the authority to make these decisions on your behalf – but such an assumption could leave your business exposed. Whilst it is often appropriate to appoint a close friend or family member to look after your personal finances, they would not necessarily be best placed to take responsibility for a business.
To protect your interests, and those of your business, we recommend that you make a business Lasting Power of Attorney (LPA).
What is a Lasting Power of Attorney?
A Lasting Power of Attorney (LPA) is a legal document through which you give your authority for a chosen individual (your attorney) to make certain decisions on your behalf.
There are two types of LPA that you can make, depending on your requirements:
- An LPA for property and affairs gives your attorneys the authority to make decisions in relation to your finances.
- An LPA for personal welfare applies to decisions relating to your personal life.
If you are putting a Lasting Power of Attorney in place wholly to protect your business, it will be a Property and Financial Affairs Lasting Power of Attorney. This will provide your attorney legal access to the bank accounts in your name and allow them to deal with the financial aspects of your business.
Why do I need an LPA?
You need a Lasting Power of Attorney if you want it to be your decision who looks after your affairs if you can’t.
Contrary to what you might expect, family members do not have the automatic right to step in and make decisions on your behalf – financial, personal or business. According to The British Banking Association: “If you are the joint account holder and the other joint account holder becomes mentally incapable, you do not automatically have the right to access the account unless you have a Lasting Power of Attorney, Enduring Power of Attorney or an order from the Court of Protection.”
The reality is that, without any LPA in place, the process is far more complicated and can prove to be a real and significant burden for your loved ones.
If an individual is deemed to have lost capacity, Social Services will consider them to be vulnerable. As such, they have a duty to inform financial institutions. Those financial Institutions – Banks, Building Societies and Insurers – have a fiduciary responsibility to protect vulnerable clients. They do this by freezing assets, blocking access to funds, preventing changes being made and stopping insurances being renewed.
The unexpected incapacity of a business owner can lead to significant financial and operational difficulties for a business. For example, there maybe no-one else in the company who has authority to control the business bank account.
Other risks to your business include:
- Staff wages not being paid
- Invoices not being paid, in particular if they are to be paid by cheque
- HMRC, accountants and advisors not being able to access financial records.
Is a business LPA right for me and my company?
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, it is not likely that your business will have a separate legal entity from you. Appointing an attorney under a business LPA is therefore an effective way to make provision for the continuity of your business, in the event you are incapacitated.
Partnerships
If you are in a partnership with several partners, check the terms of the partnership agreement. Your agreement may already set out what would happen if one of the partners became incapacitated. If such a provision exists, it may sufficiently provide for the continuity of the business and a business LPA wouldn’t therefore be necessary.
If you are unsure whether the provision made in the partnership agreement is suitable, we recommend you seek advice to avoid any conflict between a separate LPA and the agreement.
Directors of companies: articles of association
If you are a director of a company, check whether the company’s articles of association provide for the termination of a director’s appointment in the event that they lose capacity. Such a provision is often included to protect the company’s interests.
A business LPA is usually appropriate if you are the sole director of a small private company. It is unlikely that the articles of association will simply terminate the director’s appointment as there would be no one else to carry on running the business.
What happens if I don’t make a business LPA?
If you are unable to make business decisions in the future, without a business LPA in place it may be necessary for the Court of Protection to appoint a deputy to act on your behalf. The process can be very expensive and there is no guarantee that the Court will appoint someone that you would have chosen. During the time it takes for a deputy to be appointed – which could take as long as six months – your business could be exposed and at risk.
To avoid this possible future disruption, it is prudent for business owners to include making a business LPA in their long term plans for the business.
The cost of setting up a Lasting Power of Attorney with RfM Legal Services starts from £300 (plus a fee of £82 payable to the Office of the Public Guardian). This compares very favourably when balanced against the cost of applying for deputyship through the courts, not to mention the potential stress, upheaval and risk to your business.
Please note, you can only put a Lasting Power of Attorney in place whilst you are fully capable of understanding the document and its implications.
Can one LPA cover both your personal and business affairs?
We would not recommend having one LPA which appoints attorneys to manage both your personal and your business assets. Firstly, it maybe inappropriate to choose the same person to make personal and business decisions and could lead to conflicts of interest. Secondly, whilst you could appoint certain attorneys to manage certain types of assets, this could create confusion and the Office of the Public Guardian is likely to reject such an LPA.
You can, however, make more than one LPA; one for your personal affairs and a separate one for your business affairs. Our Barrister Intermediary, Sharon Rigden can advise you on the type of LPA appropriate to your needs.
To arrange a meeting to discuss Lasting Powers of Attorney, please call Sharon Rigden on 01772 431233 or email srigden@rfmlegal.co.uk. To arrange a callback, please visit www.rfmlegal.co.uk
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