Our November 2021 article covered the benefits of a Lasting Power of Attorney (LPA) which is a legal document that allows you to give a trusted individual (s) the power to make decisions for you. You can make a financial LPA authorising the attorney (s) to make decisions relating to your finances, or a health and wellbeing LPA relating to your personal welfare.

However, the importance of a Business Lasting Power of Attorney (BLPA) is often overlooked. A Business LPA allows the donor (the business owner) to appoint a trusted attorney (s) to make decisions concerning their business interests when they lack mental capacity, or when they are unavailable (i.e. abroad on holiday or for business and cannot be contacted, or they have been in an accident and are not capable of acting).

Why make a business LPA?

Business owners should be aware of the risks if there is no BLPA in place and they are unable to make business decisions in the future. With nobody in charge there are many reasons the running of a business may become jeopardised, and it is necessary to consider the following:

• Contracts entered into may no longer stand, payments of bills may need authorisation, insurances could be invalidated and bank accounts may be frozen.

• Paying employees, creditors or tax becomes difficult, and investors may require their investments to be returned.

• The value of the company may be affected, and other companies may no longer wish to trade with a business that appears rudderless.

• For regulated organisations, such as solicitors, there could be professional implications with the potential for licenses to trade being withdrawn, or regulatory bodies intervening.

• If you have not made a business LPA, then it may be necessary to apply to the Court of Protection to have a deputy appointed to act on your behalf. The process can be long, expensive, and there is no guarantee the Court of Protection will choose someone you would have chosen to run the business.

Delays during a time when the business is already facing uncertainty can exacerbate difficulties, and may result in potential litigation for failing to complete contracts or pay staff. A business LPA is an essential part of any crisis planning for a company, and enables business owners to protect their own interests and their businesses.

Who needs a business LPA?

A BLPA will be appropriate in most circumstances, but it is still important to consider the type of business you own. BLPAs are particularly important for family businesses where the business is the main source of income and may provide capital for retirement.

• Director– you should check the Articles of Association or Memorandum of Association. In the event the director loses capacity there is often a provision within the Articles of Association that will provide for the termination of a director. If there is no such provision than you should seek advice.

• Sole Trader/sole director– you are not a separate legal entity to your business and you are at high risk without an LPA because the bank accounts may be frozen, you may be unable to appoint other directors, or unable to enter into contracts. For a sole director of a small private company, the Articles of Association will probably not terminate the director’s appointment and a BLPA is recommended.

• Partners-you should check the terms of the Partnership Agreement. A BLPA may not be necessary if a partnership agreement already includes a provision concerning what should occur in the event a partner becomes incapacitated. But if you feel an LPA may be needed, or if you are unsure about the provision in the Partnership Agreement, then you should seek advice on the wording of the BLPA to ensure it does not conflict with any existing provisions.

• Shareholder– you should consider your voting rights, without a BLPA you may be unable to exercise your voting rights.

Making a BLPA

A BLPA can be set up at any time, and if you have more than one business it is possible that you may need more than one BLPA.

While there is no practical difference between a Property and Financial LPA and a Business LPA, it is important that a BLPA is distinguished and specific consideration is given to the structure of the business, whether the business can continue, who to appoint as attorney (s), any additional skills or qualifications the attorney (s) may need, and the scope of attorneys’ powers in relation to the business.

You should consider appointing a different attorney for your business LPA and your personal LPAs, often people prefer to keep their personal affairs separate from their business affairs. The person you choose as attorney should not only be someone you trust, but they should also be able to cope with the business role if they are called upon.

While many businesses prepare for crisis management, such as computer hacks or floods, there are fewer businesses that consider preparing in the event that key decision-makers become incapacitated. There are clear advantages to having a BLPA in order to avoid disruption, therefore, we recommend getting expert advice from our Private Client team to help tailor a BLPA to your specific business. Please contact a member of our team to discuss how we can assist you.  

Written by Anouschka Fenley-Paralegal.