What would happen if you couldn’t run your business? Is there someone else with access to the business bank account and finances? Who can you trust to take the reins? The only way to avoid severe disruption and pass control to someone you trust is by making a Lasting Power of Attorney (LPA).
The events of the last year have led many of us to ponder this question: ‘what would happen if something happened to me?’ As a result, you might have recently made a Will or taken steps to ensure your family is looked after financially. But what about your business interests? For small business owners, thinking about what would happen if you could no longer run your business can be quite sobering.
If you are a sole trader or the sole director of a company, you may well be the only person who can access the business bank account and other financial information. In the event that you were unable to run your business for any reason, this could lead to serious problems. Who would make important financial decisions, sign cheques or pay the wages?
Even if there’s someone else with access to the business finances, they may not be the person you would trust enough to take over the running of the business.
The only way to ensure that the reins are passed to someone you trust is by giving them Lasting Powers of Attorney (LPA).
What are Lasting Powers of Attorney?
A Lasting Power of Attorney (LPA) is a legal document through which you give your authority for an individual of your choosing (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 financial affairs gives your attorneys the authority to make decisions in relation to your finances.
- An LPA for health and welfare applies to decisions relating to your personal life.
It is possible to add business interests into a standard LPA for property and financial affairs. However, if you wish to nominate different attorneys to be able to make decisions about your business only, you would need to make a separate Lasting Power of Attorney. The LPA gives your attorney(s) legal access to the bank accounts in your name and authority to deal with the financial aspects of your business.
Why do I need to make a Lasting Power of Attorney?
You need to follow this legal process if you want to choose who would look after your affairs in the event that you couldn’t.
Contrary to what you might expect, a spouse, partner, or other close family member family members would have no automatic right to step in and make decisions on your behalf. The realisation that this is the case can add further distress, inconvenience and potential hardship, at what is already a difficult time.
The British Banking Association states that: “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.”
Where an individual is considered to have lost capacity, Social Services will treat them as vulnerable and are duty-bound to inform financial institutions. In turn, banks, building societies and Insurers have a fiduciary responsibility to protect vulnerable clients. They will do this by freezing assets, blocking access to funds and preventing changes being made.
The unexpected incapacity of a business owner can lead to significant financial and operational difficulties for a business. For example, if no-one else in the company has authority to control the business bank account this could lead to:
- Staff wages not being paid
- Invoices not being paid
- HMRC, accountants and advisors being prevented from accessing financial records.
Is a business LPA right for me and my company?
As a sole trader, you are unlikely to have a separate business legal entity. So a business LPA is an effective way to make provision for the continuity of your business, in the event you are incapacitated.
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 and a business LPA wouldn’t, therefore, be necessary.
If you are unsure whether the provision made in the partnership agreement is suitable, you should 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.
A business LPA is usually appropriate if you are the sole director of a small private company.
What could happen if there is no Lasting Power of Attorney for the business?
If you are unable to make business decisions in the future, without an LPA in place, it may be necessary for the Court of Protection to appoint a deputy to act on your behalf. This can be a long and expensive process with no guarantee that the Court will appoint someone you would have chosen.
Your business could be exposed and at risk during the time it takes for a deputy to be appointed – which could be up to six months.
Why choose RfM Legal Services?
When you make an LPA with us, we take care of the process from start to finish to give you complete peace of mind and ensure your application is swift and successful.
We offer a free initial advice session for you to discuss your needs. This can take place in person, or by video call (Skype or Zoom) or telephone, as preferred. You can also use the time to discuss making a Will, review an existing Will, or talk about another legal matter.
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.