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How your clients can protect their interests using a Business Power of Attorney

The last few months have shown us that it’s possible to lose capacity to make decisions at any time. The high-profile case of Good Morning Britain presenter Kate Garraway has shone a light on the difficulties individuals can face when trying to deal with financial matters without the correct documentation in place.

With her husband seriously ill in hospital, and many of the couple’s finances in his sole name, Garraway has been keen to highlight the problems she has faced in dealing with matters such as bank accounts and insurance.

While the need for your clients to have a Lasting Power of Attorney (LPA) in place has never been clearer, it’s important that they also consider how they might want to protect their businesses and the organisations they run.

While many of your business owner clients will already have general LPAs in place that cover their financial affairs if they lose the capacity to make decisions, their attorneys in these cases are likely to be friends or family members.

But are these attorneys qualified and do they have the skills to run a firm? Should they be making key financial decisions about valuable assets such as a company? And, more importantly, do they want to be involved in the day-to-day running of a business?

In this instance it might be more appropriate for your client to put a Business Power of Attorney in place.

No Power of Attorney can be expensive, and lead to delays

If your client is the sole director of a business, or a sole trader, their business bank accounts will usually be frozen when they lose capacity. Consequently, they will be unable to enter contracts or appoint other directors to take on their functions.

Their family might be able to manage their finances while they make an application to the Court of Protection to appoint a deputy to manage their affairs, but deputyship applications can take up to six months, and the regime is often expensive and bureaucratic. All in all, there might be no business left to run by the time a deputy is appointed.

So, as a minimum, any business owner, director, partner or shareholder with voting rights should have a business LPA in place.

Helping your clients appoint trusted people to make business decisions

A business LPA is a type of financial LPA that deals specifically with a client’s interests in a particular business. As it is specific to a client’s role within a specific business, it’s separate from general financial decisions.

Such an LPA enables a suitably qualified attorney to take over the donor’s management functions. This might be:

  • To maintain continuity
  • To enable an orderly exit from the business.

It follows that, if your client has a role in multiple businesses, they should consider making a separate LPA for each of their interests.

It’s important to note that a business LPA is not an “off-the-shelf” document. The appointment of suitable attorneys is a key component, as it means your clients can choose people with specialist skills and expertise to run the business in their absence.

Also important are the instructions that govern the extent of the attorneys’ powers and the way they must carry them out.

The LPA should include legally binding instructions that set out the business decisions attorneys can make, and those areas in which they do not have the authority to act.

A business LPA is not just for a scenario where a business owner loses capacity. Indeed, it can be used as soon as it is registered if the donor authorises it.

So, an attorney could make financial decisions relating to the business in any circumstance, from the donor taking a sabbatical to being in hospital for a spell.

A client should appoint attorneys to make management decisions on behalf of the donor, not to take over their job. The attorneys will be responsible for complying with any professional regulatory requirements and may also need to be noted as a person with significant control on the Companies House records for the business.

Why making a separate business LPA can benefit clients

If a client has an interest in a business, it can be beneficial for them to make one specific financial LPA for their personal affairs, and a business LPA for their business interests.

Each of these LPAs should contain specific instructions limiting the scope of the attorneys’ powers. For example, a personal LPA should specify that your client’s attorney will have general power in relation to your personal affairs, except for the relevant business assets (covered by the business LPA).

Your client’s business LPA should also contain specific instructions limiting the powers to business decisions. The attorneys will then be clear about the extent of their powers and will not encroach on each other’s responsibilities.

Clients can also appoint the appropriate attorney for each need. This might be a family member to assist with personal affairs, and a specialist to run the business.

Get in touch

If your clients would benefit from putting a business Lasting Power of Attorney in place, or need advice regarding their personal or business financial plan, we can help. Email hello@sovereign-ifa.co.uk or call 01454 416 653.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

 

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