Losing the ability to make decisions for oneself is a frightening prospect. It is a sad fact, though, that this can happen to anyone at any age, due to accident or illness. Consider a lasting power of attorney for peace of mind?
If you are a business owner, sole trader or company director, what would happen if you lost mental capacity? Darren McGuinness, Solicitor at Harold Stock & Co, discusses the reasons why a Business Lasting Power of Attorney is invaluable for business owners.
What is a Lasting Power of Attorney?
Lasting power of attorney (LPA) is a legal document which allows you to appoint a trusted person to make certain decisions on your behalf. You can allow this “attorney” to make decisions related to your finances, in which case an LPA for property and affairs will be created, or in relation to your personal life, where an LPA for personal welfare comes in.
This makes an LPA a very important document, and the appointment of the right attorney doubly so, as an LPA allows your life and finances to be managed effectively if you become unwell or lose the capacity to make decisions yourself.
Who needs an LPA?
Many people assume they don’t need one. Either because they believe they will never become incapacitated, or because they assume that family members or business partners can automatically step in to make the right decisions on their behalf.
Unfortunately, this is not the case. Family members do not have the automatic right to make decisions about you, and this is particularly the case when it comes to important decisions about your business.
When might business owners need an LPA?
In many businesses, particularly small businesses, the business owner makes the majority of the decisions. It is important to consider what might happen to your business if you were unable to make these decisions.
This could happen if
- You are abroad or away from the company – on holiday or with business
- You become involved in an accident
- You contract a medical condition that incapacitates you
In these circumstances, there needs to be someone who can authorise the payment of bills, sign cheques, service a business loan or pay salaries.
It’s important to remember that business colleagues do not automatically gain the authority to make these decisions on your behalf.
If any of these circumstances occur, your business could be exposed to risk.
As A Business Owner, do I need a Business LPA?
To protect your interests, and your businesses, it’s wise to make a business LPA. But it’s important to first consider the type of business you own.
As a sole trader, your business is not a separate legal entity from you. This means that a business LPA will be an effective way to make sure your business is protected if you are incapacitated.
If your partnership has several partners, it’s important to check the terms of the partnership agreement. Some agreements include provision for what would happen should one of the partners become incapacitated. If you’re in doubt about the provision or you feel that an LPA may be required, talk to a legal expert to make sure that any LPA does not conflict with the provisions already made in the partnership agreement.
Check the company’s articles of association first. Very often, these provide for the termination of a director’s appointment in the event that the director loses capacity. This is to protect the company’s interests. If you don’t have a provision in the articles of association, you may want to seek advice and consider including such a provision.
If you are the sole director of a small private company, or there would be no one else to continue running the company in the event of your incapacitation, a business LPA would highly desirable.
What happens if you don’t make a business LPA?
If you are incapacitated and can not make business decisions and don’t have a business LPA, your family or business associates have to make an application to the Court of Protection for the appointment of a deputy to act on your behalf.
This is expensive, and can take more than six months to work through. There is also no guarantee that the Court of Protection will choose someone you would have chosen. All of this leaves your business vulnerable and at risk.
To avoid this, and to put we recommend that every business owner consider a continuity plan and crisis management strategy including making a business LPA.
Talk to us today at Harold Stock & Co about a Business LPA to protect your business.