"Any business owner, director, partnership member or shareholder with voting rights … should have a business LPA.”
What happens to your business if you get ill or have a serious accident that leaves you incapacitated?
It’s a situation that many of us as business owners hope won’t happen, but as the current pandemic has shown, it’s important that somebody can take up the reins at short notice. And it’s equally important that this person (or persons) must have the ability to do everything you do, including accessing bank accounts, paying bills, signing papers, and more.
If you are the sole director of your business and you become incapacitated, your bank accounts may be frozen, you won’t be able to sign contracts, or even appoint another director to do all this for you. So your business could come to a halt, and your livelihood could disappear.
A business Lasting Power of Attorney (LPA) allows you to appoint a person or people to take over the running of your business if the need arises. It’s an emergency plan that only swings into action when you need it. Setting one up in advance will not affect your control or running of your business, until you need it to be “switched on’. It is also specific to your role, so once you have recovered and are capable of taking back responsibility, the LPA becomes “dormant” again.
No business LPA?
If you are suddenly incapacitated and have no business LPA in place, your company could be unable to function. Your company may have to apply to the Court of Protection to appoint a deputy, which is expensive, takes time and may result in someone taking over your business that you do not want to. Your customers and suppliers may also be adversely affected by the disruption, impacting on relationships and partnerships that may have taken years to build up.
How a business LPA works
A business LPA involves you (the donor) appointing a trusted person (an attorney) who acts on your behalf should you become incapacitated. With an LPA in place, you give a person or persons you trust the authority to access accounts and deal with a range of business areas such as:
- Invoices and credit control
- Tax matters and VAT
- Hire new employees
- Deal with H&S
- Buy or sell business property
- Manage business assets
Appointing an attorney
Any attorney you appoint will have the same powers as you, unless you choose to limit their remit in the LPA. Your attorney can only make decisions that you have authorised them to make, so it’s important to get the balance right. Too little authority could be far more damaging than giving them your complete level of authority. You should ideally appoint more than one attorney as if they themselves were unable to act or die, your LPA would be ineffective.
You might think the ideal attorney or attorneys might be your fellow Directors. However, if you are all approaching retirement age, it might be better to appoint attorneys with more working time ahead of them. You can also appoint a professional such as an accountant or solicitor, who will be seen as impartial and independent, but as a result may not know your business as a current employee.
Got questions about business LPAs? Call us on 023 9226 8969 to arrange a meeting to discuss your requirements, and advice on how to choose a responsible and trusted individual to be your attorney.
Setting up a business LPA
Being a business LPA attorney is clearly a very responsible job, so make sure you’ve talked it through with the person you’d like to appoint and checked that they are happy with this. As the MCA Code of Practice says:
“An attorney should be trustworthy, competent and reliable. They should have the skills and ability needed to carry out the necessary tasks.”
A business LPA must be set up properly with the help of an experienced professional. They will check that there is no potential conflict of interest for your attorney, and discuss with you why you have chosen them. This will also include checking that your attorney is properly qualified if you are in a regulated profession, such as being a Chartered Surveyor.
Your LPA professional will also ensure that the scope of your business LPA is limited to your business only, and does not cover your own personal affairs. (These should be dealt with in the two different personal LPAs). If you have several businesses, you might want to create an individual business LPA for each of them, thus spreading the workload and putting the right person in place as required.
Articles of association and business LPAs
If you are a Director of a Limited Company, you will need to check your articles of association before setting up a business LPA. You may find that the articles will already allow for any appointed director to be removed from post if they become incapacitated. If it is not in place, you can have it added with the help of a lawyer. If you are the sole Director, then it’s highly unlikely such as clause will be in place. In these circumstances a business LPA becomes a necessity to ensure your business can continue functioning until you recover.
Mental capacity and business LPAs
The important aspect of LPAs is that they are temporary and only activated if required. So, if you temporarily lose mental capacity, you have not ‘lost’ your business permanently. According to The Mental Capacity Act 2005, any attorney you appoint must involve you as much as possible:
“So far as reasonably practicable, (they should) permit and encourage the person to participate, or to improve their ability to participate, as fully as possible in any act done for them and any decision affecting them.”
Business LPAs: the best £82 you’ll ever spend
Registering a business LPA with the Office of the Public Guardian is an absolute bargain, but it’s worth investing considerably more in professional advice to research, draft and set it up. Unlike insurance policies that just pay out money, an LPA helps ensure your business can continue to function, trade and grow while you recover. That peace of mind alone is priceless.
Expert help with business LPAs
Call us at Panthera Estate Planning for expert help in setting up your business LPA.