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HCR Law Events

26 April 2021

Should I have a Lasting Power of Attorney (LPA) for my business?

Business LPAs allow the donor (the business owner) to appoint suitable attorneys to make decisions concerning their business when they are unavailable or lack mental capacity. It is important to consider how your business would operate on a day to day basis if you cannot make decisions or are unavailable. Without an LPA in place the business can be exposed to certain operational risks in which could make it vulnerable. A business LPA is often a separate document from the LPA that you should have in place to deal with your personal financial affairs, although one or more of the attorneys could be the same.

When can an LPA be used?

  • If the business owner loses mental capacity, which means they can no longer make decisions in relation to the business
  • If the business owner is abroad or unable to attend the business premises
  • If they have an accident which makes them temporarily or permanently unavailable

If a business does not have an LPA in place when the above situations arise, then an application can be made by a third party to the Court of Protection to appoint a deputy to act on the business owner’s behalf. This process can be quite expensive and lengthy. It is not guaranteed that the deputy appointed by the court will be someone that the business owner would have chosen themselves.

Who is a business LPA suitable for?

Sole traders

If you work as a sole trader, the business is unlikely to have its own independent legal body. Appointing an attorney under a business LPA is an important way to ensure the continuation of your business if you become temporarily or permanently incapacitated.

Partnerships

Some partnership agreements may also have provisions in place about what would happen if one of the partners is unable to act for a variety of reasons. If such a provision exists, it might already be sufficient to ensure the partnership’s stability, in which case a business LPA will be unnecessary. If you have any doubts regarding a clause in the partnership agreement, or believe that an LPA is necessary, you should seek legal advice on the wording of the LPA to ensure that it does not conflict with the partnership agreement’s provisions.

Directors

Check the articles of association if you are a director of a company. The termination of a director’s appointment is often provided for in the articles of association if the director lacks capacity, although this is now considered discriminatory. If you are the sole director of a small private corporation, you should make sure that the articles of association do not terminate your appointment on this basis, because there will be no one else to manage the business. In these circumstances, a business LPA would be appropriate.

Who should I choose as my attorney?

It is important that your attorneys are trustworthy and understand your business model, as well as having the business acumen to be able to run it in the way that you would want them to.

It is always best practice to appoint more than one attorney. The business LPA is flexible, allowing you to decide whether the attorneys will make decisions together, individually, or a combination of the two. This gives you greater control over how your business will be run if you are unable to do so yourself.

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About the Author
Victoria Baker, Partner & Notary Public

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