Bishop & Sewell
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If you are a business owner, you make important decisions every day that are vital to the continuity of your business. But what would happen if you were to become incapacitated (temporarily or permanently) through illness or injury? Who would be able to carry out the day-to-day running of the business and make decisions on your behalf?

It is a common misconception that members of your family or your employees will be able to automatically step in and run the business in your absence, which is not always the case. In order to protect your business from uncertainty, you should consider putting a Business LPA in place which appoints trusted individuals to make decisions on your behalf concerning your business interests. This is an essential part of any business continuity plan, and not doing so puts your business at risk.

Lasting Powers of Attorney – a background

A Lasting Power of Attorney (also known as an “LPA”) is a legal document that allows a person (called a “donor”) to appoint one or more people (called “attorneys”) to make decisions on their behalf if they were unable or unwilling to make those decisions themselves.

The donor must be over 18 and have mental capacity to make an LPA. Once an LPA is submitted to the Office of the Public Guardian, it can take up to 10 weeks to be registered.

There are two types of LPA:

  • Property & Financial Affairs LPA – as the name suggests, this covers your property and financial affairs, and your attorneys would be able to make decisions and/or sign paperwork on your behalf in relation to your UK assets. You can choose whether your attorneys can act for you as soon as the LPA is registered at the Office of the Public Guardian, or only when you lose mental capacity.
  • Health & Welfare LPA – deals with non-financial aspects of your life, such as decisions about medical treatment, diet, visitors, and where you should live. Unlike the Property and Financial Affairs LPA, this document can only be used by your attorneys when you lose mental capacity.

Business LPA

A Property & Financial Affairs LPA can extend to both your personal and business assets, but you may not want the same attorneys for both your personal and business interests. An attorney who is more than capable of making decisions involving your personal assets (such as a family member) may not have the relevant skills or experience to deal with your business assets. It also may not be appropriate in the circumstances, due to a potential conflict of interests.

A donor can however make more than one LPA, and having a separate Property and Financial Affairs LPA which specifically deals with your business interests separately from your personal financial affairs is called a Business LPA.

A separate Business LPA should be prepared for each business interest so that your choice of attorneys and instructions to your attorneys are specific to that business. Otherwise, you may give power to attorneys who do not have the suitable knowledge to effectively manage the business in your absence, or there may be confusion over the scope of the attorneys’ responsibilities.

Will a Business LPA be suitable for my business?

Sole trader

If you are a sole trader, your business may not be classed as a separate legal entity (like a company), and a Business LPA appointing an attorney or attorneys to make decisions on your behalf if you were incapacitated would be a suitable way to ensure continuity.

Partnership

If you are one of the partners in a partnership, the partnership agreement should be reviewed to see whether there are any restrictions in allowing an attorney to act on behalf of a partner. The partnership agreement may already provide for circumstances where a partner becomes incapacitated, and a Business LPA may not be required.

If there is no partnership agreement, the Partnership Act 1980 applies. On an application by a partner, the Court may decree a dissolution of the partnership when a partner becomes permanently incapable of performing their part of the partnership contract (section 35(b) Partnership Act 1980).

If you are uncertain about whether a Business LPA should be prepared, you should obtain professional advice, in particular on the wording of the LPA to ensure it does not contradict the terms of the partnership agreement.

Director

If you are a director of a company, the articles of association should be reviewed to see whether there are any restrictions in allowing an attorney to act on behalf of a director.

It was held in Mancini v Mancini [1999] that the office of a director is a personal responsibility and can only be discharged by the person holding that office, subject to the company’s articles of association.

It is also common for articles of association to include a provision whereby a director’s appointment can be terminated if they are deemed to lack capacity.

If however you are a sole director of a small private company, the articles of association may not contain such restrictions (otherwise there would be no remaining officers in charge), and a Business LPA would be suitable.

If you are unsure about the wording of the articles of association and whether a Business LPA should be taken out, you should seek professional advice.

Why should I consider a Business LPA?

The key factor for making a Business LPA is to ensure your business continues to operate in the unfortunate event that you suddenly become incapacitated, so that everyday tasks (such as paying employee wages and authorising payments) can be carried out.

However, it does not have to be used only when this stage is reached. The donor can choose to authorise their attorneys to make decisions on their behalf while they are still mentally capable of doing so. Examples of such situations include while you are away for holiday or business purposes, or if you are taking a sabbatical.

Who should I choose as my attorney?

The donor should think carefully about who they choose as their attorney. An attorney should have the necessary skills and ability to carry out the tasks that would be involved in running the business in your absence. They should be someone who understands your business and who you consider to be trustworthy and reliable. Depending on the circumstances, this could be a fellow partner, or the company accountant or solicitor.

What happens if I don’t make a Business LPA?

If you are no longer capable of making decisions due to mental capacity and have not appointed an attorney to act on your behalf under a Business LPA, the consequences to your business may be catastrophic.

An application may need to be made to the Court of Protection to appoint a deputy, which can be costly and time-consuming. Until a deputy is appointed, your business may not have someone with the authority to make day-to-day financial decisions, and your business could suffer as a result.

Our Corporate & Commercial and Private Client teams work closely to provide a well-rounded service for our business clients to ensure cover is in place for their personal and business interests if the unexpected happens.

If you are affected by similar issues or would like to have a related discussion in confidence, please call me Nicholas Barlow Partner and Head of the Private Client team on 020 7692 7561 or email nbarlow@bishopandsewell.co.uk or Luke Jenkins Solicitor and a member of the Private Client team on 020 7631 4141 or email ljenkins@bishopandsewell.co.uk

The above is accurate as at 14 September 2021. The information above may be subject to change during these ever-changing times.

The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.


Category: Blog | Date: 7th Sep 2021


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