While we often hear about the benefits of personal lasting powers of attorney (LPA), Yousafa Hazara, expert at Irwin Mitchell explains the importance and the significance of having one for business matters. Yousafa also explains how they are often overlooked.
An LPA lets a person to give one or more people authority to make certain decisions on their behalf. An LPA isn’t just for personal assets. It may be in the best interest of a business owner to protect themselves in the same way.
Many people have a dedicated “Business LPA” which is a type of Financial Decisions LPA that gives certain individuals responsibility for business decisions only. You can also have a separate LPA for personal finances and property.
A Business LPA enables a qualified attorney or attorneys to take on the business owner’s management tasks. It can allow the continued running of a business in the event of a temporary or permanent loss of mental capacity due to illness or an accident.
Why make a separate Business LPA?
Without a Financial Decisions LPA, anyone who needs to deal with assets on someone else’s behalf needs to make an application to the Court of Protection to be appointed as their deputy. This is expensive and can take at least six months, which could have a significant impact on a business.
The person who lacks capacity doesn’t have any say over who the court picks as the deputy to manage their assets and finances. For someone with business interests who is unavailable or lacks mental capacity, it may not be possible to pay staff and suppliers, complete unfinished transactions, or enter new contracts. By putting a Business LPA in place, a business owner guarantees that someone who they trust and who understands the business, will have the authority to manage its day-to-day operations in the event the owner is unable to do so.
Capacity issues for business owners
There are things to consider when a person with business interests loses mental capacity.
Suitable arrangements need to be in place to make sure that the right people can make decisions in the best interests of the individual and their business.
Maintaining day to day operations is important, for example accessing bank accounts and signing new contracts.
Key issues to consider before creating a Business LPA
1. Check your governance documents
Before putting an LPA in place it’s important to make sure the provisions won’t clash with any existing business agreements. For example, a partnership or LLP agreement may already provide for the omission of a member in the event of permanent incapacity or a company’s articles of association may contain provisions requiring the removal of a director lacking mental capacity.
Certain provisions could discriminate so it’s important to take advice before entering into these.
2. Suitability of attorneys – Children, partners, and family members
Choosing the right business attorneys requires careful consideration, who has the right experience and skills? Will they be able to cope with the responsibility? Will employees accept the new authority? These are all important factors to consider. It will often be most appropriate for “personal” assets such as, personal bank accounts and family property to be managed by family members, for instance a partner or adult children. However, it may not be desirable for those people to be responsible for business decisions.
Business LPA attorneys may need strategic and technical skills to step into a business owner’s shoes and appointing individuals with complementary experience can be important.
3. Instructions and guidance for the attorneys
The document itself will need to be carefully designed, providing instructions and guidance in relation to the attorney’s role and powers. If you have more than one business interest you may need to make more than one Business LPA, each with its own tailored provisions.
Taking advice on business LPAs
When considering your own business wealth and continuity, it’s important to take proper advice for any type of Lasting Power of Attorney. Issues will come up with business interests so it’s important to appoint suitably qualified attorneys with powers and restrictions in place to run the business effectively. It’s equally important that a Business LPA will work effectively alongside any personal LPA’s as well.
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