A lasting power of attorney (LPA) is a legal document which allows you as a ‘donor’ to appoint one or more people, ‘attorneys’, to make decisions on your behalf in the event of physical or mental incapacity.
There are two types of LPAs:
- Health and Welfare LPA – this covers decisions regarding medical treatment and care
- Property and Financial Affairs LPA – this covers managing bank accounts, pensions, property investments and property dealings
Whilst LPAs usually relate to an individual’s personal affairs, they can also relate specifically to a person’s business interests. This is called a ‘Business LPA’ (BLPA).
Why use a BLPA?
A BLPA can protect the interests of business owners and the organisations they manage, and is particularly useful for partners in a business, LLP members, company directors and sole traders. It is specific to that individual’s role within their particular business and ensures that if a key decision maker is unable to act, someone else can do so on their behalf. An individual with interests in multiple businesses would usually make separate BLPAs for each of those interests.
Some situations in which a business partner may be unable to make decisions include:
- being abroad for holiday or business
- in the case of a personal injury or accident, or
- developing an incapacitating medical condition
In using a BLPA, the attorney must act in the best interests of the Donor of the BLPA and the business. Furthermore, the Donor can specify in the BLPA what decisions they want the attorney to be able to make on their behalf, and areas in which they would not have authority to act. These decisions may include entering business contracts, managing business assets and overseeing staff and their salaries. It is important to remember that attorneys are appointed to make management decisions on behalf of the Donor, not to take over their job.
The Donor can additionally make a separate memorandum of wishes to set out their wishes and views about the business, as further guidance.
What Happens if I Don’t Have an Attorney?
The worst-case outcome if the Donor loses capacity to run the business, would be that the business would cease to operate. All assets and business accounts could be frozen, leading to salaries not being paid and the business being unable to function as usual.
Unless an attorney has been appointed under an LPA, an incapacitated person’s family will need to obtain an order from the Court of Protection to manage the person’s financial affairs. Such court applications typically take 6 months or more and can cost thousands of pounds.
Without a BLPA, any attempt to remove a director or partner from a business would be complicated and open to legal challenge under discrimination legislation. While some companies may have articles of association that mandate the removal of directors who lack capacity to run the business or may allow the appointment of “proxy” directors, such provisions are likely to be outdated and may fall foul of current discrimination legislation.
An incapacitated person’s business assets cannot be sold unless an attorney is in place to act on behalf of the incapacitated person, or an order of the court is obtained. For example, a person’s business partners may wish to purchase the incapacitated person’s shareholding if that person is no longer able to participate in the business. A BPLA allows an incapacitated person’s attorney to act in the transaction and take receipt of any sale proceeds. This avoids the expense and delay of a court application.
Why Do I Need a BLPA if I have an LPA?
An attorney appointed under a personal Property and Financial Affairs LPA can take business decisions, but may not have the necessary skills or experience to do so. Additionally, it may not be appropriate for the same person to make both personal and business decisions, due to potential conflicts of interests.
Having separate attorneys managing your personal affairs and business affairs may also relieve them from having too many responsibilities. It ensures that the Donor who controls your personal affairs can do so without the additional complications involved with running a business.
Who should I choose?
The attorney(s) selected needs to be an individual who understands the Donor’s business and how it operates. This could be someone already working within the business, or a third party. Preferably, this would be someone working in a similar field. Most importantly, the attorney chosen should not have any conflict of interest.
The Mental Capacity Act Code of Practice advises than an attorney should be trustworthy, competent and reliable, with the skills or abilities to carry out any necessary tasks.
Where Can I Seek Advice for Creating a BLPA?
At Healys we are happy to draft your Lasting Powers of Attorney and to act as your attorney if you wish. We appreciate that travel and time constraints can make it difficult to always be available to sign documents – Powers of Attorney can offer a solution to this issue.
For more information on Lasting Powers of Attorney, please visit our website here. To discuss your bespoke requirements, please don’t hesitate to contact Head of Private Client, Will Mumford, directly at: Will.Mumford@healys.com or via telephone on: 01273 – 685888.