A Business Lasting Power of Attorney is a legal document which allows you to give another person (your attorney) authority to make decisions on your behalf. There are two types of LPA, one in respect of health and welfare decisions, and one for property and financial affair
With recent changes in legislation and case law it is now almost impossible to remove a company director who has lost mental capacity.
To remove them based upon an impairment would breach discrimination laws and even the courts are reluctant to fall foul of this legislation. This could lead to a Director in a position of authority making decisions and accessing company accounts without the remaining Directors being able to do anything about it.
The damage that could be done to a company does not bear thinking about and there is suggestion by legal experts is that this could lead to an influx of cases through the courts by Shareholders suing Directors who have not taken their responsibilities to the Company seriously
Every Director owes a Duty of Care to the Company and to their shareholders to ensure the smooth running and to do all that is within his power to prevent his actions from being detrimental. If the ability to remove that Director is now curtailed by the Equality and Discrimination legislation then what can be to protect the business?
The answer is simple, each Director should prepare a Business LPA which is a personal document authorising someone they trust to act on their behalf and step into their shoes should they be in a position where they no longer have capacity to carry out their duties. There are various occasions when the Business LPA would be useful. The loss of capacity due to mental illness is of course major concern but there could be a short term illness or injury which affected capacity as well as perhaps trips abroad which could require someone to deal with matters in their place.
Given the potential risk to Directors and their families from being sued by co-Directors and Shareholders for having not made sufficient provision it is now vital that everyone who runs a business has an LPA dealing specifically with their business affairs.
Quite often although the legislation covers specifically Company Directors should a case come before the courts concerning either a sole trader or a partnership then the courts are likely to apply the same principles.
Our trained Consultants can assist you in determining the potential risk to your business and advising on the requirements under the new legislation to protect your interests and your business.
What is a Business Lasting Power of Attorney
A Business Lasting Power of Attorney is a legal document which allows you to give another person (your attorney) authority to make decisions on your behalf. There are two types of LPA, one in respect of health and welfare decisions, and one for property and financial affairs.
A Business Lasting Power of Attorney (BLPA) is the one you need for your business. Once registered with the Office of the Public Guardian, it will allow your attorney to deal with property and finances, and is a flexible document that may be used before the onset of any mental incapacity (if you want it to) as well as lasting beyond.
If you lose capacity and do not have an LPA, it may become necessary for an application to be made to the Court of Protection for an order appointing someone else to act on your behalf. This can be expensive and time consuming.
Appointing an attorney via the LPA to deal with property and financial affairs is a useful precaution against future incapacity. If you do not restrict the power, then your attorney can use the document to act at your direction if you are out of the country or physically incapacitated.
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.
An BLPA is a very important document, as it ensures continuity in the management of your life and your finances, should you become unwell or lose the capacity to make decisions.
Perhaps you feel that an LPA is not necessary, and assume that family members can step in, when necessary, to make decisions. But this is not the case; family members do not have the automatic right to make decisions on your behalf.
Benefits of a Business Lasting Power Of Attorney (BLPA)
Peace of mind that you have put in place a legal mechanism to deal with your business interests (note for companies it is imperative to check the articles of association, for partnerships check the partnership agreement or, if none, the Partnership Act 1980 will come into play, to ensure the LPA is consistent with these) if you are incapacitated, unavailable or lacking mental capacity.
The ability to limit the powers to deal with your business interests as you see fit through the LPA.
The knowledge that your business will keep ticking over so that, for example, important decisions can be made, wages can be paid, stock purchased etc.
The safeguard that through the LPA your attorneys need to act in your best interests, encourage you to make decisions for yourself (if you can), act in good faith and, if in a professional capacity, according to the standards of skill and care expected of a person in that profession.
You can choose whether you wish to pay the attorney e.g. professional attorneys such as solicitors and accountants would charge for their services and if you wish to appoint to pay a non-professional attorney, you can record this in the LPA.
Business LPAs are especially useful for directors, due to recent changes making it difficult to remove a director who has lost capacity.
WHY Business LPA’s are a valuable insurance and IS VITAL FOR YOUR BUSINESS
As a business owner what steps have your business partners and you taken to protect your business and your respective families in the event of your death or critical illness or mental/physical incapacity?
Without the full and proper protection in place, you are leaving your business and your family exposed not only to the taxman but also to potential financial disaster.
Unexpected incapacity of a Business owner can cause financial and operational difficulties for a business. It could, for example, result in no-one having authority to control the business account.
Have you considered what might happen to the business if you were to lose your mental capacity by illness or injury or if you were stranded abroad because of delay or extreme weather conditions? or if something happens to you? Who would take over the running of the business on your behalf, sign contracts, pay salaries and suppliers, write cheques and make the important day-to-day decisions to keep the business going. Worryingly, many financial institutions respond to a business owner’s lack of capacity by freezing bank accounts.
The aim of all the business owners is to make their business a success and to provide for their families and their loved ones. You work very hard, commit time and money to your business and have employees and suppliers who are all depending on you. You and they have families who need your financial support and security.
You could lose control of the business Because:
- The partner’s shares have passed to their family members who now want to be involved in running your business despite your wishes to the contrary;
- The partner’s shares have passed to their family and they want to sell them to a competitor for a higher price than you can afford to pay.
Your family could receive an unfair value of your business Because:
- There is no agreement in place to determine the business/share value or on what basis the shares are valued so the company could offer less than market value to your family;
- The company has insufficient funds to pay your family the true market value of the shares;
- The value of the business falls due to your critical illness or mental/physical incapacity.
Your family could pay unnecessary tax to the taxman Because:
- Where the transaction of shares is mandated on death (as is usual within an off-the-shelf Articles of Association or a binding agreement), then such business assets will no longer be eligible for ‘Business Property Relief’ (BPR) and are therefore included in the taxable estate;
- Whoever the shares are left to, if your beneficiary then sells those shares, the benefit of any BPR will be lost on their subsequent death.
Your business could be forced to close Because:
- It is unable to find sufficient funds to buy back a partner’s shares from their family;
- You are in a partnership and there is no Partnership Agreement in place;
- You are unable to make decisions or sign relevant documents due to critical illness or mental/physical incapacity.
Appointing a trusted representative to deal with your business affairs
Now that you have built a successful business, you will need to protect it.
Dealing with money and paperwork can be difficult if you become unable to manage your personal affairs for any reason, and in ill health it may be impossible. The same can be equally said if you are a business owner.
The first thing to consider in preparing your Business Lasting Power of Attorney (BLPA) is a review of your company’s articles. Next you will need to identify who would be a suitable attorney. This should be someone you TRUST and who is familiar with the business. Once in place, the BLPA will allow your attorney to make financial decisions on your behalf, including buying and selling property, accessing bank accounts, opening and closing bank accounts and investing assets.
What can you do as a business owner to tackle this? Appoint an attorney to act on your behalf.
Business Lasting powers of attorney (BLPA) can be a valuable form of insurance against temporary or permanent future incapacity. BLPA’s / LPA’s enable you to appoint one or more attorneys to step in and make business decisions on your behalf if you are no longer able to do so yourself. It also ensures that your business runs smoothly even when your unavailable. The attorney could be a trusted friend, family member or someone that knows the Business.
Whilst it may be appropriate to appoint a close friend or family member to deal with personal finances, that person may not have the best understanding of your business. Business owners therefore ought to consider making a separate personal financial decisions LPA. Please click here for details on the Personal Lasting Power of Attorney.
The Business Lasting Power of Attorney (BLPA) is a legal document which allows your attorney to deal with your business affairs.
It is natural to hope you will never need a lasting power of attorney but why take the chance?
Business Lasting Power of Attorney should be an essential element of your business continuity plan and a small price to pay for the continuing success of the business you have worked so hard to build.
What happens if I don’t make a business LPA?
If you’re unable to make business decisions in the future, and have not made a business LPA, it may become necessary to make an application to the Court of Protection for the appointment of a deputy to act on your behalf. The process can be expensive, and there’s no guarantee that the Court of Protection will choose someone you would have chosen. It could also take more than six months before a deputy is appointed, during which time your business may be vulnerable and at risk.
To avoid disruption, it should be part of any business owner’s continuity plan and crisis management strategy to consider making a business LPA.
Business Succession Planning
With the correct business succession planning and the relevant documentation in place you, your family, your business and your business partners can be safe in the knowledge that the scenarios highlighted above will never happen. K&Co Estate Planning can achieve this for you by drafting your documents for you:
Q - But i have Key Person Insurance?
Most businesses will have Key Person Insurance Policy and crisis management plans in place, but the issues of lack of capacity are often overlooked.
Q - Can you make an LPA covering your personal and business affairs?
It may be possible to have just the one LPA appointing attorneys to manage your personal assets and your business assets. However, it may not be appropriate for the same person to make both personal and business decisions, due to a potential conflict of interests. You could consider making an LPA appointing certain attorneys to manage your personal assets, and others to manage your business assets. But bear in mind that this could create confusion regarding the scope of the attorneys’ powers, and the Office of the Public Guardian is likely to reject the LPA.
Fortunately, it’s possible to make more than one LPA. You could consider making one for your personal affairs and a separate one for your business affairs. Often, people like to keep their business affairs separate from their personal affairs, so this option tends to appeal.
If you are considering making two LPAs, each should contain specific instructions limiting the scope of the attorneys’ powers – for example, a personal LPA should specify that your attorney will have general power in relation to your personal affairs, except for the relevant business assets in respect of which you have executed a separate business LPA. Your business LPA should contain specific instructions in this respect, too. Your attorneys will then be clear about their powers and will not encroach on each other’s responsibilities and decisions.
Q - Your business Lasting Power of Attorney
“The first step in preparing a business LPA is a review of the company’s articles of associations, and partnership or shareholder agreements.
“Next you will need to identify a suitable attorney. This should be someone you trust and who you know you know is capable of doing the job how you want it done, is familiar with the business, and who has a similar outlook and knowledge of the market and business as you.
“Once in place, the LPA will allow your attorney to make financial decisions on your behalf, including buying and selling property, organising property insurance and repairs, accessing bank statements, opening and closing bank accounts, investing assets, and dealing with tax affairs.
“It is possible to appoint more than one attorney, and specify attorneys to act jointly in some matters, but separately in others. For example, a trusted business associate who knows the business could act on your behalf alongside a family member, to negotiate contracts independently of the second attorney, but only access bank accounts with the approval of the second attorney.
Q - Better Shape
“If the worst happens, your business will be in much better shape with an LPA, which makes good business sense and is right for the majority of companies irrespective of size. It should be the cornerstone of an effective business continuity plan.”