Many of us plan ahead in our personal lives by putting Lasting Powers of Attorney (LPAs) for health and welfare and property and financial affairs in place. These documents allow your nominated attorneys to make decisions on your behalf if you ever lose capacity in the future. But have you done the same planning for your business?
A business owner should consider what would happen to their business if they were ever unable to make business decisions either because they have lost capacity or if they are temporarily unable to act because of an accident, illness or if they are abroad or on holiday. It is a common misconception that your spouse or employees will automatically gain the authority to pay bills, sign cheques, pay salaries and sign contracts on your behalf if you are unavailable, however this is not the case. To protect your business, and interests, a business owner should consider making a business LPA.
How do I make a business LPA?
The process is the same as making an ordinary LPA for property and financial affairs, you choose your attorneys who will act on your behalf, and you will need a certificate provider to also sign the document. The business LPA will however contain specific instructions, limiting the scope of the attorneys’ powers to dealing with the specified business assets only. You must also ensure that your personal LPA for property and financial affairs limits your personal attorneys’ power to decisions over your personal affairs only, and not over the relevant business assets. Clarity is key when specifying the powers that are granted under each LPA to make sure that there are distinct boundaries between business and personal LPAs and that the attorneys don’t intrude on each other’s responsibilities and decisions.
Is a business LPA necessary for me?
Yes. Although your business isn’t a separate legal entity, you can distinguish your business assets from your personal assets in your business LPA and ensure your attorneys only have power over these assets.
You should check the terms of your partnership agreement, as this may already specify what would happen if a partner lost capacity. If your partnership agreement already provides for this, a business LPA is unnecessary (a personal LPA will still be useful!). If, however, your partnership agreement is silent on this point, or if a partnership agreement is not in place, a business LPA may be necessary, however it must be carefully drafted to ensure that it does not conflict with any other provisions in the partnership agreement.
A director of a company should check their company’s articles of association as they may already specify what happens if a director loses capacity (for example, it may specify that a director’s appointment is terminated on loss of capacity). If the articles are silent on this point, you may wish to consider a business LPA. To avoid any problems in the future, it is important to also check whether the articles of association have any restrictions on delegating responsibilities.
A business LPA is more likely to be relevant if you are the sole director of the company. It is unlikely that the company’s articles will provide that your appointment is terminated on the loss of capacity if you are the only director and so you should consider a business LPA to allow your nominated attorneys to make decisions on your behalf, should you ever become unable to make business decisions on your own.