Running your own business? Why you should consider a business LPA
Do you run your own business? Find out why you should consider a business Lasting Power of Attorney.
While most people are aware that Lasting Powers of Attorney (LPAs) can be put in place to look after their personal welfare and financial affairs if they lose capacity, many business owners don’t know that protecting your business may require a separate LPA. Business LPAs are set up to enable a nominated person to make day-to-day decisions about the running of your business if you were ever unable to do so, on a temporary or permanent basis.
What are Business LPAs?
As a business owner, it is important to consider what would happen if you were ever unable to make decisions regarding running your business, especially if it’s you and your family’s main or only income stream.
A Business LPA allows you to have control over who makes business decisions on your behalf by appointing attorneys. It is important to appoint an individual or individuals who firstly you trust, and secondly who understand the mechanics of your business and how you would like it to be run.
Unlike a personal LPA, the appropriate attorney may not necessarily be a family member or friend – it may be another partner (in a Partnership), a co-director or your business accountant.
A Business LPA may come into effect in the following circumstances:
- If you are abroad on holiday or for business.
- If you decide to take maternity leave.
- If you were to have an accident which left you temporarily incapacitated, either mentally (if you were in a coma) or physically (if you were in hospital having an operation).
- If you developed a medical condition that affected your mental capacity permanently such as the late stages of vascular dementia.
The type of business you have will also play a part:
- Sole Trader– usually your business is not a separate legal entity from you, therefore a Business LPA would be the most effective way to ensure continuity of your business.
- Partnerships– often, Partnership Agreements provide for the circumstance in which one of the partners becomes incapacitated. However, if you have any concerns with the provision in the Partnership Agreement, you should obtain advice to ensure the wording of the Business LPA does not conflict with these provisions.
- Directors of Companies– the company’s articles of association may provide for terminating a director in the event that they permanently lose capacity and are unable to make decisions.
Business LPAs can also be used to cover temporary situations (with your consent) which may not be covered in the company’s articles of association so you may want to appoint a co-director to act on your behalf whilst you’re away on extended leave.
Also, a Business LPA would be advisable for a sole director, as their appointment cannot be terminated if there are no other individuals to continue running the company.
Should my Business LPA be kept separate from my personal finances LPA?
The short answer is yes – appointing the same attorney to make business decisions and personal financial decisions may put the individual in a conflict of interest making the LPAs unworkable. In addition, people often prefer to keep their business affairs and personal affairs separate and in that case, a separate LPA for personal and business would be the best option for you.
It usually makes sense to want your family members looking after your personal affairs. However, they may not be experienced or comfortable with making your business decisions, especially if they have no experience with your industry.
On top of the conflict of interest, if there is any ambiguity or confusion regarding the scope of your LPA, the Office of the Public Guardian are likely to reject it. Therefore, it may be more practical to prepare two LPAs, one for personal finances and another for business finances. But word of caution, if you do choose to prepare two separate LPAs, it is imperative that the scope of your attorneys’ powers are clearly stated, to ensure their roles do not overlap, avoiding any difficulties in the future.
What happens if I do not have a Business LPA?
If you are unable to make business decisions and you don’t have a registered Business LPA in place, it may be necessary to make an application to the Court of Protection to have an individual, referred to as a Deputy, appointed on your behalf.
However, this is often a costly and time-consuming process leaving your business at risk in the meantime. If your business is reliant on executive decisions being made, it may suffer in the interim period it takes to appoint a deputy.
You will also have no control over who the Court appoints to act as your Deputy and it may not be someone you would have chosen, for example the Court may appoint a law firm over a family member.
All in all, it makes sense to protect yourself from the unexpected, and to take back control over the future of the business you put so much energy into building.
Abigail Bird is a Partner and head of the legacy team at Laurus. Abi is passionate about making sure people are protected in every area of their lives from their family to their business. You can find more of Abi’s advice on Instagram @AskLawyerAbi.
Photo by Gabrielle Henderson
