Partner Elizabeth Short, in our leading Wills, Probate, Tax & Trusts team, explains why a business Lasting Power of Attorney (LPA) can be an important and useful legal document.
What is a Lasting Power of Attorney (LPA)?
A Lasting Power of Attorney (“LPA”) is a legal document which formally allows someone else (your Attorneys) to make decisions on your behalf in circumstances where you cannot do so for yourself (or do not wish to). Commonly, LPAs are made with later life (post-retirement) in mind and most clients choose to make LPAs for both financial decisions and for health and welfare decisions. The former can be used both when you have mental capacity and when you do not and the latter, only when you lack capacity altogether.
Most clients make LPAs with personal considerations in mind and many do not take the opportunity to consider what the wider impact of any potential incapacity might be during their working years. This is particularly so with clients who operate businesses either as Sole Traders, via a limited company or through a traditional partnership or LLP. A Business LPA should be a key part of your succession planning toolkit but is often left to one side.
It is entirely possible and indeed, sensible, to consider making two LPAs for financial decisions with one to cover your business and the other to cover other (non-business) matters.
It is a common misconception that your spouse, partner or children would somehow automatically be able to make decisions for you if you cannot do so for yourself. There is no guarantee that your business would be able to operate in the way you wish if you have not made appropriate arrangements for any incapacity.
Why a business LPA is important
A Business LPA can be useful in many scenarios, for example:
- If you are away abroad and unable to return to the UK (physical incapacity). This is particularly pertinent at present given the ever-evolving situation with the COVID-19 pandemic but could also be relevant if you are working remotely abroad and need someone in the UK to be able to make decisions relating to the business on your behalf if you cannot.
- If you have an accident or medical diagnosis which impacts your ability to make decisions or give directions in relation to the business (mental incapacity).
Who in these circumstances would be empowered to pay suppliers, sign contracts, authorise payroll or access the business bank account? What reputational damage might follow if you are incapacitated and had not considered this possibility?
An existing LPA for financial decisions can used in relation to business decisions but it is important to consider if (a) this is appropriate and (b) if it is practicable.
For example, whilst it may well be appropriate for your spouse or children to make day to day decisions about your finances, does the same apply to your business interests? Do they understand the intricacies of the business you run? Do they have the appropriate expertise or professional qualifications? It is also important to consider what provision, if any, is already in place in relation to your business in the event of incapacity? If you are a sole trader then this is fairly straightforward but if you are a member of a partnership or LLP or a director of a limited company with more than one director/shareholder, there are wider considerations and a review of any business governance documentation should be undertaken as part of your regular business audit to ensure that appropriate arrangements are in place and that your plans do not infringe equality and discrimination legislation.
For family businesses, the incapacity of a close family member is, in itself, difficult to navigate and this can be compounded where there is a business at stake. Our experienced team regularly advises business owners and entrepreneurs on all aspects of Business LPAs, business continuity and crisis planning.
Ranked as a top tier firm in the UK's leading guides to law firms, Chambers HNW and The Legal 500, we are recognised as one of the leading law firms advising on private client matters in the Thames Valley. We also provide a full range of commercial legal services to businesses of all shapes and sizes, and, naturally, their owners.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
