SMEs and Lasting Powers of Attorney
A Lasting Power of Attorney (LPA), is a legal agreement whereby you identify a person(s) to make decisions about your care and finances should you become incapacitated. LPA’s are very good practice when it comes to planning personal affairs however, business owners should apply similar thinking when it comes to their business.
If you are a business owner it is important to consider what would happen if you had an accident that kept you out of the business temporarily or permanently, or you developed a medical condition that incapacitated you or even if you became stuck away from the business for an extended period of time.
The way in which the business is set-up will determine what can be done. However, many small businesses are individually run, perhaps as a sole trader or as the sole director within a limited company structure. With this kind of structure business owners often assume that a close colleague or family member will take control of the business. This is probably not the case and could leave the business (and any employees) at risk. It is unlikely that a friend or relative could extract cash from a business without an LPA, even if it is for the benefit of the owner. Decision making will be compromised and previously successful well-run businesses can fail very quickly.
LPA’s need not be all encompassing and is possible to draft them providing authority for someone to act in a number of limited areas. A business LPA should be separate from a general finances LPA. Incapacitation can be long or relatively short term. The recent Covid-19 outbreak has shown us that it is quite possible for people to be out of a business at a time when key decisions need to be made. If there is no provision for this the business is at risk, perhaps with many years hard work lost in a very short space of time.
Some may be concerned about the power that an LPA could grant to a third party. However, well drafted LPA’s can place limitations and guidance, such as limiting cash withdrawals from the business, or limiting the scope of decision making. Whilst the Attorney has power to make decisions they should always – as far as possible – consult with the business owner. The Attorney can be held personally liable for losses if there is a breach of duties.
For Partnerships there could be some provisions written into the Partnership agreement that deal with the incapacitation of member however, this should not be assumed and a LPA that does not conflict with the Partnership agreement could be appropriate.
Larger companies will likely have articles of association that set out what will happen should a director be unable to fulfil their responsibilities, but once again this is worth checking.
Can I make an LPA that covers my personal life and my business life?
This is possible however, it may not be appropriate to have the same person(s) appointed as the attorney for your personal and business matters. Fortunately it is possible to have more than one LPA. People often decide to separate their personal affairs from their business affairs. Unfortunately others fail to consider the implications for their personal or business life should they become incapacitated and may not even have a current will!
What if I don’t have an LPA covering my business?
Should you be unable to make decisions about your business and don’t have a business LPA in place it may be necessary to apply to the Court of Protection to appoint a deputy. This can be expensive and the deputy appointed may not be someone you would have chosen. It can also take quite a long time to appoint a deputy which could cause significant problems for a business.
Businesses can take many years to establish yet they can fail as a result of even short term incapacitation. It therefore makes considerable sense to take time to plan for any period of sustained absence by the owner through an LPA.
Should you require assistance in drafting a personal or business LPA please contact Siobhan Rooney or Melissa Browning.
T: 0800 302 9448