Safeguarding your business – why you should consider a business LPA
We are all familiar with lasting Powers of Attorney, which allow individuals to appoint an attorney to manage their personal affairs if they cannot do so themselves. A business lasting power of attorney operates on the same basis. It is a document that appoints an attorney to deal with your business affairs and make decisions if you are incapacitated and can no longer manage the business yourself. That may include decisions about your business finances, operations and legal matters.
Why is it essential to have a Business Lasting Power of Attorney?
A business lasting power of attorney (LPA) is essential because it ensures business continuity and smooth continued operation should the owner be temporarily or permanently unable to manage the business. It allows decisions to be made, wages processed and paid, and contracts signed or enforced even though the business owner is incapacitated.
Who can benefit from a Business Lasting Power of Attorney?
Sole traders and single-director limited companies benefit most from a business lasting Power of Attorney. A partner in a partnership or a director in a limited company (with more than one director) may benefit. However, the terms of the partnership agreement or the articles of association may contain provisions for dealing with the incapacity of a partner or a director, rendering a business lasting power of attorney unnecessary.
How does a Business Lasting Power of Attorney differ from a Personal Lasting Power of Attorney?
A business lasting power of attorney focuses on the donor’s business. The donor is the person who grants the business Power of Attorney. Whilst a personal lasting power of attorney will deal with the donor’s personal affairs, the business lasting power of attorney focuses on the donor’s business needs. These include business continuity, finance management, contract negotiation, completion and enforcement and general business operations. The business lasting power of attorney can be tailored to meet the specific needs of the donor’s business.
Compliance with the Mental Capacity Act 2005
A business lasting power of attorney must comply with the terms of the Mental Capacity Act 2005, which sets out the specifics regarding the donor’s capacity. Section 9 of the Act and subsequent sections deal with the requirements for the creation of lasting powers of attorney, the appointment of attorneys (“donees”), restrictions, scope, and revocation.
Communicate the existence of the Business Power of Attorney to Stakeholders
It is essential to inform others involved in the business’s management about the existence of the business lasting power of attorney. It may also be advantageous to inform the business’s bank and professional advisers. As a result of the grant of the business lasting power of attorney, management will be confident of the business’s continuity.
Some examples of the application of a Business Power of Attorney
Scenario 1: Unexpected Incapacity
Situation: You, the business owner, become incapacitated due to an accident or illness, rendering you unable to manage your business affairs.
BLPA Solution: Your attorney can step in to handle essential tasks, such as signing cheques, paying invoices, managing bank accounts and making important business decisions, preventing disruption and financial losses.
Example: The attorney can authorise the payment of salaries, service business loans, or sign contracts on your behalf.
Scenario 2: Business Continuity
Situation: You are a shareholder or director in a company or a partner in a partnership, and you become incapacitated, should the partnership agreement or articles of association omit a procedure for dealing with incapacity.
BLPA Solution: The BLPA allows your attorney to act on your behalf, ensuring the business can operate smoothly without delays or complications.
Example: The attorney can manage business assets, handle tax affairs, or potentially hire or remove employees in coordination with and with the consent of other partners or co-directors.
Scenario 3: Travel and Absence
Situation: You are a business owner who frequently travels and finds it challenging to manage certain aspects of the business while abroad.
BLPA Solution: Your attorney can handle business matters while you are away, allowing you to focus on other aspects of your life without worrying about the business.
Example: The attorney can manage business contracts, deal with clients, or attend meetings on your behalf.
Scenario 4: Removing a Partner or Director
Situation: A partner or director in your company becomes incapacitated and cannot consent to being removed.
BLPA Solution: If the partnership agreement or articles of association omit provisions dealing with incapacity, a BLPA may allow your attorney to remove the incapacitated partner or director, preventing potential issues and ensuring the smooth running of the business.
Example: The attorney can take the necessary steps to remove the incapacitated partner or director, ensuring the business can operate effectively.
Business Lasting Powers of Attorney – take legal advice!
If you are considering drawing up a business lasting power of attorney, it is critical that you seek legal advice. This will ensure compliance with the most up-to-date legislation and that the power of attorney contains provisions tailored to your business and operational needs.
If you would like any more information relating to this article please contact Timur Huseyin on 020 8221 8051 or at timur.huseyin@bowlinglaw.co.uk
This article is not intended to provide legal advice; it is intended to provide information of general interest about current legal issues.
