Many business owners have lasting powers of attorney (LPAs) in case they are prevented from managing a business, for example due to illness.
An 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.
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).
There are a number of reasons why you may prefer your personal finances to be handled separately from your businesses finances, should you not be in a position to do so. Relying on more than one person when dealing with your financial affairs can prevent conflicts of interest, for example.
Why use a BLPA?
A BLPA can protect the interests of business owners and their businesses. It is specific to an 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 business.
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
The BLPA 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.
Appointing Someone You Trust
An attorney should consider your wishes wherever possible but may be obliged to depart from your wishes if it is no longer in your business’ financial best interests. If you appoint a trusted lay attorney or an impartial professional attorney, you should be able to rely on them to make decisions in your best interests. Being overly prescriptive in the ways in which your attorney can / can’t act may lead to the BLPA being unworkable and applications to the Court of Protection to rectify the BLPA.
Without a BLPA …
Without a BLPA, you could leave your business vulnerable to closure. 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.
Additionally, 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.
Having a BLPA in place provides you with the opportunity to appoint someone you trust and who understands your business to support you should this be required.
Healys Solicitors Can Help
Healys can help you draft your Lasting Powers of Attorney and can act as your attorney if you wish. For more information, please visit our website.
Alternatively, please don’t hesitate to contact Healys solicitors directly at: email@example.com.