A business Lasting Power of Attorney allows your client to appoint an attorney (someone they know and trust) to make decisions concerning their business interests should they be unavailable or lack mental capacity. A business LPA is separate from their financial affairs LPA which will have been created to manage their personal financial situation.
Business LPA’s should be viewed as an extension of managing business interests in the context of business crisis management and reducing business risk.
Why make a separate Business Lasting Power of Attorney?
If an individual loses capacity and has not executed a valid Enduring Power of Attorney or Lasting Power of Attorney then an application to the Court of Protection to appoint a deputy may be required. This is a lengthy process which can take up to 12 months to resolve and can also be a costly approach. During this time, there is no one who can lawfully make financial decisions on your client’s behalf and bank accounts may be frozen until the deputy is appointed.
This situation will be extremely problematic for a client with business interests who is unavailable or lacks mental capacity. It may not be possible to pay staff or suppliers, complete unfinished transactions or enter into new contracts. This will have a significant impact on the day to day running of the business and could threaten it’s future.
Where bank accounts are jointly held in the names of the business partners or directors, the bank may choose to freeze the account if a partner or director loses capacity to deal with the financial affairs. This can severely expose the business to failure.
Having a business LPA in place enables the business leader to ensure someone they trust and who understands the business will be able to make appropriate decisions and secure it’s survival.
The attorneys will be able to deal with property owned or leased by the business, organize insurance, access bank statements and accounts, deal with tax affairs, pay staff and suppliers and sign contracts.
In many situations it may not be appropriate for the same person to be appointed to manage an individuals personal affairs as it is for their business interests due to the requisite competency, understanding and skills. In addition, it may be that professional regulatory requirements, conflicts of interest as well as articles of association or partnership agreements for example could prohibit this.
Who might require a Business Lasting Power of Attorney?
Sole Traders
It’s often the case that sole traders rely on an individual’s specialist or technical expertise. Generally speaking, a sole trader who does not make provision for when they are unwell, away overseas or lack mental capacity are exposing their business to unnecessary risk.
Partners
It is recommended that partners consult their partnership agreements regarding any provisions that they may contain regarding the incapacity of any of the partners. Depending on their structure, partnership agreements may be governed by the Partnership Act 1890 or the Limited Partnerships Act 1907 or (as an LLP) by the Limited Liability Partnerships Act 2000.
There may be provisions removing partners who lack mental capacity and this could be found to be in breach of the Equality Act 2010. Some agreements may or may not limit partners liabilities meaning that one member may or may not be responsible for another members misconduct or negligence. To better manage a potential situation, it may be wiser for each of the partners to consider putting a Business LPA in place.
Company Directors
Prior to a legislative change in April 2013, if a director lacked mental capacity the other directors could seek a court order to remove them, but this is now not possible. Other issues can arise in the instance where shareholders may consider removing a director lacking mental capacity by calling a shareholders meeting and serving special notice to the director concerned. However, the director would need to be given the opportunity to defend themselves and if they lack the capacity to do so, would not be in a position to receive the notice and therefore adequately defend themselves. Issues can arise with any requirements to involve the Court of Protection for representation or issues around discrimination, therefore a business LPA would be beneficial for all directors. Individual company articles should be checked first but essentially applying the rules of agency, a donor (the principal) could a appoint a proxy (attorney) to make decision on their behalf. This is different from appointing someone to take on the full job role of director and is possibly more acceptable to the other directors.
What’s required make a Business Lasting Power of Attorney?
As with a personal LPA, the person making the Business LPA (the donor) is required to have;
- Mental capacity (as determined by the MCA 2005)
- Intention (i.e. an understanding of the purpose and consequence of making the LPA
Who should be appointed as an attorney?
It’s going to be really important that the person selected to potentially act as an attorney has a good understanding of the business and is someone that the client trusts to manage their business affairs. It’s generally recommended that more than one attorney is appointed and the client should decide if they are to act jointly, jointly and severally or jointly for some decisions and severally for others.
Do you have clients with business interests who could benefit from a Business LPA? Get in touch and we can assist.
Call 01522 500823 or email enquiries@btwc.co.uk
