Powers of Attorney for business owners

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Powers of Attorney for business owners

As a business owner, it is important to consider what would happen to your business if you were unable to make decisions. One solution may be a business power of attorney.

What is a lasting power of attorney?

A lasting power of attorney (LPA) is a legal document through which you authorise a chosen person (an attorney) to make certain decisions on your behalf.

The decisions that you authorise your attorneys to make can be either in relation to your finances, for which an LPA for property and affairs will be created, or in relation to your personal life, where an LPA for personal welfare will be created.

An LPA ensures continuity in the management of your life and your finances, should you become unwell or lose the capacity to make decisions.

LPAs for business

You may be unable to make decisions for a number of reasons. This may be if

– you were abroad on holiday or for business

– you were to have an accident

– you were to have a medical condition that incapacitated you

In such circumstances, you need to consider who would step in and deal with your business affairs on your behalf. Issues arise if there is no longer someone with capacity to act as a signatory on business bank accounts or documents generally. This causes difficulties making payments or leaves no one with legal authority to enter contracts. All of this is inherently detrimental or even fatal to the future of the business.

A family member or a business colleague does not automatically gain the authority to make these decisions on your behalf.

To protect your interests, and those of your business, you should consider making a business LPA.

A business LPA is about business continuity and securing and protecting the individual’s interest in the business. The LPA’s significance and purpose depends upon the business type and structure.

While it is possible for a sole trader or partnership to be run using a power of attorney, this is not necessarily possible for a company because of its status as a distinct legal entity, detached from its owners. For a business, the first step in considering the appropriateness of an LPA is to review the business documents, including the articles of association, partnership agreement or shareholders’ agreement.

Partnerships

Partnership agreements may already set out what happens when a partner becomes incapacitated or unavailable. . If such a provision exists, it may already adequately provide for the continuity of the business, in which case, a business LPA wouldn’t be necessary. Significant difficulty could arise if there is nothing in the agreement on this point and no LPA is in place.

Directors of companies: articles of association

Articles of association usually govern what happens if a director becomes incapacitated. Very often, articles of association will provide for the termination of a director’s appointment in the event that the director loses capacity. This is often done to protect the company’s interests. If such a provision is not included in the articles of association, you may want to seek advice and consider including such a provision.

If you are the sole director of a small private company, the articles of association are not likely to simply terminate the director’s appointment, or there would be no one else to continue running the company. In such circumstances, a business LPA would be appropriate.

It’s not possible for a director to delegate their function through an LPA. However, directors are often shareholders as well and it is possible for the shareholder to appoint an attorney under an LPA. This ensures business continuity because the shareholder’s attorney could appoint a new director.

What happens if I don’t make a business LPA?

If you haven’t made a business LPA, and find you are unable to make business decisions in the future, it may become necessary for someone to make an application to the Court of Protection for the appointment of a deputy to act on your behalf.  The process can be lengthy and expensive, and there’s no guarantee that the Court of Protection will choose someone that you would have chosen. Court delays could be crucial to the continued success of the business as it can often take more than six months for a deputy to be appointed.

To avoid disruption, it should be part of any business owner’s continuity plan and crisis management strategy to consider making a business LPA.

 

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