Do I really need a Lasting Power of Attorney for my business?

Do I really need a Lasting Power of Attorney for my business?

As a business owner, it is vital for you to consider what might happen to your business if you were not able to make decisions due to:

  • lack of mental capacity, an illness, an injury or a medical condition that means that you may no longer have the capacity to act
  • an accident that might make you temporally unable to make decisions and run the business
  • or, if you are not able to sign the paperwork due to spending a lot of time abroad.

Who would take over the running of the business on your behalf, sign contracts, pay salaries and suppliers, write cheques and make any important day-to-day decisions to keep the business going? Worryingly, many financial institutions respond to a business owner’s lack of capacity by freezing bank accounts.

You might think that your family members or your other business partners/directors can take over, but there is no automatic legal right to deal with another person’s financial affairs and this might place your business at risk.

To tackle this you should consider appointing an Attorney to act on your behalf and deal with any business matters. This would ensure business continuity in the event of you being unable to work.

To legally appoint an Attorney to act on your behalf, you would need to complete and sign a Lasting Power of Attorney (LPA), which is a legal document that allows you to give another person (your Attorney) authority to make decisions on your behalf in any issues relating to your Business. By having an LPA in place for your business interests (Business LPA) you can ensure that your business runs smoothly even when you are unavailable or incapacitated.

Who is a business LPA is suitable for?

  • If you are a sole trader it is very important that you have a business LPA in place to ensure the continuity of your business, in the event that you are unable to work.
  • If you are in a partnership or a director you will need to carefully check your partnership agreement and the article of association. Some partnership agreements and articles of associations may include provision for what would happen should one of the partners/directors becomes incapacitated. If such provisions are included, a business LPA might not be necessary.  However, it is very important you seek legal advice, if you are not sure such provisions are included or you believe a business LPA might be useful.
  • A director of a company is usually bound by the Articles of Association of the company which may contain a provision stating that a person ceases to be a director when he loses mental capacity. Whilst Mancini v. Mancini [1999] NSWSC 799 holds that the power to act as a director cannot be delegated under a power of attorney, an attorney may act on the shareholder director’s behalf when voting.  
  • If you are self-employed you do not have a separate legal entity to your business so it’s important that you consider setting up a Business LPA.

Points to consider

The first item to consider in preparing a Business LPA is a review of the type and structure of the business you own and any membership agreements and articles of association.

Next, you will need to identify who would be a suitable attorney. This should be someone you trust and who is familiar with the business.

Please note that your Business LPA will be limited to your business assets only, therefore your business attorney would have authority to deal with your business assets only. They would not be able to access and manage your personal bank accounts, property or any other personal assets.

You can of course make a second Property and Finance Lasting Power of Attorney to appoint a different attorney, normally a family member, to deal with your personal financial affairs.

We believe a Business Lasting Power of Attorney is an essential element of your business continuity plan and could play a vital part in the continuing success of the business you have worked so hard to build.

Please note that a Business LPA can be a very complex matter and professional advice should be sought before creating one.

How can Neves help?

For further advice and assistance in preparing a Business LPA tailored to you and your business, please contact Nina or another member of our Private Client team by calling 0330 0945 500, emailing info@nevesllp.co.uk or complete our online Contact Form and we’ll get back to you.