Do you have an LPA in place for your Business?
Have you ever heard of the terms Commercial LPA or Business LPA? Well you will be interested to know that there is actually no such thing as either document.
A business LPA specifically differs from personal LPA’s because it will be tailored according to the business and considers its articles of association along with shareholder agreements or partnerships agreements.
You can put an LPA in place for your business should you become unable to make decisions due to unavailability i.e. holidaying abroad, illness, accident or simply due to a loss of capacity. The power vested in your chosen attorney would allow them to continue running the business, paying salaries to staff, sign cheques, access the business account or even pay bills.
A business can either be run in the capacity as a sole trader, partnership or even a limited company. Let’s look at each of these in more detail.
In this instance, it is likely that the business is owned and therefore controlled by you. If you do not have provisions put in place in the event of loss of capacity or simply because you are unable to make a decision due to illness or injury, no one will be able to continue to make important business decisions on your behalf unless you have an LPA in place.
If the business is set up as a partnership, there may be a partnership agreement in place which determines what happens if you are no long able to make decisions. It is advisable to check for this first before an LPA is drawn up first to prevent any conflict between the 2 documents.
If you are a director of a Limited Company, you will have articles of association in place which again could contain certain provisions with regards to what could happen if you or another one of you co- directors becomes incapacitated.
Again, you should check this first before making an LPA to ensure both documents do not conflict with one another.
So how do you go about making an LPA for your business? Quite simply, you would use an LPA for Property and Financial Affairs but ensure this LPA only deals with business decisions so, for example, “My attorneys only have the authority to use my business accounts and make decisions relating to my business. They are not permitted to use my personal account or make decisions about my personal finances.”
This means that in your personal LPA you would specify “My attorneys only have the authority to use my personal bank account. They are not permitted to access my business account or make any decisions relating to my business.”
This makes it clear to your attorneys where the authority starts and ends. Alternatively, you could one LPA and say nothing. Providing the LPA doesn’t contain any instructions that restrict the attorney’s power to only personal finances then they will be able to deal with the donor’s personal and business affairs.
Who should act as an attorney in your LPA? You may think that you can rely on friends or family but the truth is that they may not have the authority to do so. Business partners do not automatically have this right unless the agreement says otherwise.
A family member or friend may not have the expertise knowledge to continue making business decisions, so you can either appoint a professional (which will have an associated fee) or even your business partner if you feel this is the right decision. Effectively, it needs to be someone you trust, understands your business and shares the same or similar business goals.
It is important that the LPA is registered while the donor still has the mental capacity to do so.
What happens if no LPA has been put in place for your business? Quite simply, if you own a business, lose capacity and there is no LPA in place, it is likely the bank will freeze the business accounts which could be disastrous for your business. It also means the only way forward would be for someone on your behalf to make an application to the Court of Protection and apply for a Deputyship Order. This can take up to 6 months and can be very expensive. This then has the snowball impact of no-one being able to make crucial business decisions during this time frame – how will staff be paid, stock purchased?
Capacity can be lost at any time and could be due to either an accident, a stroke or a deteriorating condition so please don’t wait until it’s too late or your business could be severely disrupted.
If you would like to find out more information regarding making a Lasting Power of Attorney for your business, please contact one of our members.