Most people these days are aware of Lasting powers of attorney (LPAs), either having written one for themselves or having dealt with their parents’. They fall into two categories ‘health and welfare’ and ‘property and financial’ and are usually for ‘personal affairs’. There is however an increasing trend towards having one to cover the financial aspects of your business.
A business LPA (BLPA) can be useful for partners in a business, members of an LLP, sole traders and directors. It ensures that if you, as a key decision maker, are unable to act, someone else can do so. Without one, at worst, if you lose capacity to run the business through illness, accident or old age, it could cease to operate. The business bank account might be frozen, contracts not completed, staff unpaid, and claims made against the company for its failures. In this situation, an application would have to be made to the Court of Protection for the appointment of a Deputy, a process which can take many months and is much more expensive and restrictive.
Setting up a BLPA is, in the long run, a wiser and safer approach. In using a BLPA, the attorney (the person you chose to manage your finances in the event you were unable to) must act in the best interests of you and your business if you become incapacitated. You can specify in the BLPA the decisions you would want the attorney to be able to make. For example, dealing with staff, entering into business contracts or managing business assets.
It can also be useful for you to make a separate memorandum of wishes to set out your wishes and views about the business, to assist the attorney.
Who should you choose?
The person chosen needs to be someone who understands your business and how it operates. This could be someone already working in the business itself, assuming there are no conflicts of interest. Alternatively, this could be a third party from outside, possibly in a related field. The Mental Capacity Act Code of Practice advises that an attorney should be trustworthy, competent and reliable, with the skills and ability to carry out the necessary tasks.
Do I need a BLPA if I already have an LPA?
Whilst an attorney appointed under a personal property and financial affairs LPA can take business decisions, does he or she have the necessary skills to do so?
A BLPA enables you to appoint someone specifically for the purpose of taking business decisions, and that appointment takes precedence over the personal financial LPA for matters relating to the business. The attorney appointed under the personal LPA can then concentrate on your personal financial affairs, without the additional complications of running a business.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
