Earlier this year, we looked at the importance of putting a Lasting Power of Attorney (LPA) in place. Three million LPAs have been implemented in the last 12 years, and these play an important role in managing the financial affairs and care requirements of clients who lose capacity.
While an LPA can help you to nominate a trusted person – often a family member or friend – to make certain decisions regarding your money or care, what happens to your business? Are your family members qualified to sit on a company board? Is your attorney capable of making key decisions about the running of a business?
The use of LPAs to protect the interests of business owners and their companies is less well known. So, here’s your complete guide to how a Business Lasting Power of Attorney could benefit you and your business.
Lasting Power of Attorney – a refresher
An LPA is a legal document that lets you (the ‘donor’) appoint a representative (the ‘attorney’) to act on your behalf if you lose capacity.
The donor must be aged 18 or over and have full mental capacity at the time the LPA is made. The LPA must then be registered with the Office of the Public Guardian before they can take effect.
Each LPA usually appoints between one and four attorneys. It can also nominate ‘replacement’ attorneys to take over if the original attorneys become unable, or unwilling, to continue to carry out their functions.
There are two types of LPA:
- Financial – allows you to delegate financial and property decisions to an attorney
- Health and care – authorises decisions about care and medical treatment if you lose capacity
A business LPA is a type of financial LPA that deals specifically with your interests in a particular business separately from general financial decisions.
It enables a suitably qualified attorney to take over your management functions, either to maintain continuity or to enable an orderly exit from the business.
How a Business LPA works
A business LPA is specific to your role within the business. So, if you have interests in multiple businesses, you would typically make a separate LPA for each of those interests.
A business LPA is not an ‘off-the-shelf’ document. It should appoint suitable attorneys (see below) and provide specific instructions that govern the extent of their powers and the way they should be exercised. These will be legally binding instructions that set out the business decisions with which attorneys can deal, and those areas in which they do not have authority to act.
The idea is that you would appoint an attorney to make management decisions on your behalf of the donor, not to take over your job.
For example, your attorney could instruct existing employees to perform key tasks or employ new people if there is a skills shortage. They would also be responsible for complying with any professional regulatory requirements and may need to be noted as a person with significant control on the Companies House records for the business.
Making sure your Business LPA integrates with company law
Lasting Powers of Attorney are governed by the Mental Capacity Act 2005 while companies are governed by the Companies Act 2006.
Unfortunately, the two laws do not always co-exist harmoniously. For example, your business may have articles of association that mandate the removal of directors who lack capacity, or that do not allow for the appointment of ‘proxy’ directors (including attorneys).
It is important that your company or partnership’s governing documents are reviewed and, if necessary, amended at the time a business LPA is drafted.
Even without an LPA, any attempt to unseat an incapacitated director or partner would be likely to be open to legal challenge under discrimination legislation.
Using an LPA for temporary incapacity
Many people think of LPAs as being permanent arrangements. In some cases they are, although there will be other cases in which business owners or directors temporarily lose capacity.
For example, illness or injury could affect your mind or brain, but you may eventually return to full capacity. Similarly, you could retain full decision-making capacity but might not have the physical ability to carry out your executive functions – perhaps while undergoing aggressive medical treatment.
In these cases, a business LPA can be suitable.
How to appoint the right attorney
When you appoint an attorney to deal with your business affairs, they should:
- Have the ability and experience to make the decisions that fall within their remit
- Understand that remit, and its limits
- Understand your business
- Be trusted by you to act according to your wishes
In many regulated professions, the management of a firm can only be carried out by a suitably qualified professional. For instance, if you are a partner in a firm of Chartered accountants then any business attorney you appoint will also need to be a Chartered accountant.
Attorneys are often:
- Another director or partner within your firm
- An independent person such as a solicitor or accountant
You should also think about the age of any attorney that you appoint. It would not be sensible to appoint an attorney who is likely to retire, or lose capacity themselves, before you.
Make sure your Business LPA is drafted correctly
A business LPA is a bespoke and complicated document that requires a deep understanding of both your personal and commercial priorities and company, commercial and employment law.
The LPA needs to work commercially as well as legally, so you need to be satisfied that the law firm you appoint is as competent commercially as it is in matters of private client law.
Get in touch
If you want any more information about business planning, please get in touch. Email firstname.lastname@example.org or call 01454 416 653.