Why are business Lasting Powers of Attorney (LPAs) so important

Have you ever given thought as to how you would like your business affairs managed if, for any reason, you could not make decisions for yourself?  One in 6.8 people experience mental health problems in the work place (Mental Health Foundation).

The Mental Capacity Act 2005 (the Act), which came into effect on 1 October 2007, introduced two types of Lasting Power of Attorney (LPA) – a Property and Financial Affairs LPA and a Health and Welfare LPA.

A Property and Financial Affairs LPA allows your attorney(s) to deal with your property and finances.  However, in some instances, it will not be appropriate for the same person to make both personal financial decisions and business decisions on behalf of the donor and you can create multiple LPAs specifying which matters (which may be personal or business) are covered by each LPA.

A Business LPA allows you to appoint an attorney to make decisions concerning your business interests when you are unavailable (it is possible to use a Property and Financial Affairs LPA and/or a Business LPA as if it were ‘an ordinary power of attorney’) or lack capacity.

An attorney under a Business LPA may, for example, make decisions (unless you provide otherwise) concerning:
•    control, management, sale, exchange and acquisition of business assets;
•    entering into contracts;
•    paying wages and tax;
•    hiring and removing employees; and
•    managing health and safety issues.

The business attorney may be said to be standing in your shoes.  It is important that the business attorney is familiar with the business concerned and is someone whom you trust with your business affairs.  When making decisions, your business attorney should consider how you would have made the decision, apply certain principles (set out in the Act) to the decision, and act in your best interests when making the decision.  Appointing one of your other partners/directors may be suitable to protect your business, however conflict of interest and influence should be considered and, where appropriate, an independent attorney appointed to act in your best interests.

If there is no Business LPA in place and you lose capacity, an application to the Court of Protection for a “deputyship” order can be made. This application process can take six months or more and during this time the business would be exposed to the risk of the bank considering freezing their bank account. Whilst any views you can express should be taken into account, you will not be in control of exactly who is appointed as deputy, as this decision ultimately rests with the Court.

If you operate your business on your own and you lose capacity, no-one would be able to make immediate decisions.  Even if your business is operated as a partnership or a company, you should consider appointing an attorney to make decisions concerning your interests when you are unable to do so. If you are a person with significant control, a loss of capacity would seriously affect the running of the business and its ability to function. It may not be possible to complete the sale of the business or other transactions.  The partnership agreement or articles of association and any shareholders’ agreement should be reviewed.

We have looked after the affairs of our clients for generations and frequently act as attorneys and deputies for them.  We have a great deal of experience in this area of practice and if you require specific professional advice, please discuss with your usual contact in the firm or email the author at una.angus@ts-p.co.uk