You may think that if you become unavailable to run your own business for a short or longer term, then your family and/or friends have an automatic legal right to act upon your behalf in relation to your business. They do NOT. Likewise, business partners and employees do not automatically have this right unless there is a legally valid business agreement in place which confirms that your business partners and/or employees can legally act upon your behalf.
What Happens if no LPA has been put in Place for your Business?
If you own a business and then lose your mental capacity without an LPA in place, it is likely that the bank will freeze your business account(s) as a security measure. This could prove extremely detrimental for your business. It also means that the only way forward would be for someone to make an application to the Court of Protection on your behalf and apply for a Deputyship Order (limited powers to make some decisions for you). This can take several months, can be very expensive, and offers no guarantee of success. In the meantime, nobody can make important business decisions which would impact upon how staff salaries and other business financial liabilities are serviced,
A business “Power of Attorney”, otherwise known as Lasting Power of Attorney (LPA), specifically differs from personal LPA because it will be tailored according to your business and considers Articles of Association along with official business, partnership, and shareholder agreements.
You can put an LPA in place for your business should you subsequently become unable to make decisions due to occurrences such as unavailability, holidays, illness, accident, or a loss of mental capacity. The power vested in your chosen attorney(s) would allow them to continue to run your business, pay salaries to staff, sign cheques, access the business bank account(s) and service other ongoing business obligations.
In this instance, it is likely that the business is owned and therefore controlled by you personally. If you do not already have LPA provision in place in case of the loss of your mental capacity or simply because you are unable to make decisions due to illness or injury, then nobody else has legal authority to make important ongoing business decisions upon your behalf. HOWEVER, no appointed attorney ever has any power to make decisions on your behalf unless you subsequently lose your mental capacity or expressly permit your attorney(s) to act on your behalf.
A business can either be run as a sole trader, a partnership, or a limited company.
Sole Trader
In this instance, it is likely that the business is owned and therefore controlled by you personally. If you do not already have LPA provision in place in case of the loss of your mental capacity or simply because you are unable to make decisions due to illness or injury, then nobody else has legal authority to make important ongoing business decisions upon your behalf.
Partnership
If your business is set up as a partnership, there may be a partnership agreement in place which determines what happens if you are not able to make decisions. It is advisable to check for this before an LPA is drawn up to prevent any conflict between the 2 documents.
Limited Company
If you are a shareholder (and usually also a director) of a Limited Company, you will have Articles of Association which could contain certain provisions with regards to what will happen if you or another one of your co- shareholders and/or co-directors becomes unavailable or incapacitated.
Again, you should check this before making an LPA to ensure that there is no conflict between both documents.
Who Should Act as an Attorney in your Business LPA?
A family member or friend may not have the expertise, knowledge, or qualifications to make business decisions on our behalf. So, you can either appoint a professional (which will have an associated fee) or even your existing business partner(s) if you feel this is appropriate. Effectively, you should select someone you trust, who understands your business, and shares your business objectives.
A business LPA must be registered with a court (known as The Office of the Public Guardian) whilst you still have the mental capacity to do so. This will NOT be possible after you have lost your ability to make official business decisions.
Summary
Mental capacity can be lost at any time and could be due to either an accident, a stroke, or a deteriorating health condition. You should NOT wait until it is too late to arrange a Business LPA, otherwise your ongoing business activities could be severely disrupted.
For further details WITHOUT CONSULTATION FEES NOR OBLIGATION, please visit Power-of-Attorney.
TRF Wills (TRF) was created by Michael Cotterill in 2005. He is a member of the Society of Will Writers and registered with the Information Commissioner’s Office.