Business Lasting Power of Attorney – should you have one?

We as a firm act for many clients who have business interests, whether they run a business as a sole trader, within some form of partnership or as a limited company. We often speak to clients personally about the benefits of putting in place a Lasting Power of Attorney to deal with their property and financial affairs or to deal with health and welfare issues.

One area which is becoming increasingly popular is the possibility of putting in place a business Lasting Power of Attorney (“business LPA”). If you are a business owner, it is important to have provisions in place should you not be able to make decisions regarding your business, due to physical inability or mental incapacity. In such circumstances, issues that may arise could include the inability to authorise payment of bills, sign cheques, pay salaries or enter into enforceable contracts. There may also be a risk of the business’ bank account being frozen.

Many clients have arrangements in place to cover circumstances such as death, either governed by a memorandum and articles of association, shareholder’s agreements or partnership agreements, but one thing that is rarely covered is a situation if a business owner were to lose the capacity to make decisions. Denzil Lush, the Senior Judge of the Court of Protection, commented on a case in 2013 that there are circumstances where the Donor (the person making the LPA) should have made two Lasting Powers of Attorney, one for their businesses and the other for their personal affairs.

Appointing an attorney on a business LPA

There are certain rules over who can be appointed. Under the Mental Capacity Act, an Attorney has a legal duty to act in the Donor’s best interests. This is taken to be fairly self-evident, but it has an important impact as far as an appropriate Attorney for a business owner. If you were to appoint an Attorney, they must be someone who is capable of making decisions in relation to your business that you yourself would be able to make. They must have sufficient understanding of your business, its structure and the obligations and responsibilities which you as a business owner have. If you are a director of a limited company, then you owe a responsibility and in fact are in a position of trust for all of the shareholders and therefore any Attorney you appoint must also be capable of stepping in to that position.

If your business is a limited company, then anyone you appoint as an Attorney must be capable of acting under the Companies Act and cannot be barred from doing so. Within a partnership agreement you would ideally need to cover the ability to grant powers of delegation. The Partnership Act 1890 is silent on this issue and with the correct drafting it is entirely possible for partners to delegate roles and functions to other partners.

It is also important that the chosen attorneys have the appropriate experience and skills to carry out the tasks they will be required to perform. For example, if you have a professional qualification such as a Solicitor or an Accountant then you can only appoint another Solicitor or Accountant to be your Attorney for the purposes of a business LPA.

Once the business LPA has been registered, it will allow the appointed Attorney(s) to help manage the business when required. You can choose to allow your Attorneys to act before you have lost mental capacity (under your authorisation and instructions only), as it can also be useful for business owners who travel abroad frequently and are not always immediately available to attend a meetings in person. It is important to note that this does not affect the owner’s right to continue managing the business, as long as they are able and willing to do so.

A Business LPA could be tax deductible

One thing which will be of interest to business owners is that the cost of putting in place a business LPA should be tax deductible, as it is a business document which would enable you to carry on running your business and should be seen very much as good practice. Each partner or director should have their own individual and separate business LPA, as it may be that each person has their own ideas as to who would be appropriate to act in that regard.

Possible consequences if a business LPA is not in place

If a business LPA has not been put in place, and you unfortunately lose mental capacity, an application can be made to the Court of Protection to appoint deputies to act on your behalf. However, this should not be viewed as an alternative option for the future, as it can be a costly exercise and cause further delays, during which time your business may be vulnerable and at risk.

It should not be assumed that a colleague or family member can automatically step into your shoes and make business decisions on your behalf. Where possible, it is essential to plan for the future. We would certainly recommend that a business Lasting Power of Attorney is drawn up as a separate document to deal with a client’s business interests.