Lasting Power of Attorney for Your Business
Q. Are you a sole trader or a partner in a private firm?
Q. Do you have a Lasting Power of Attorney?
Due to recent changes in legislation your business could be affected. Are you protected against the risks?
The Mental Health (Discrimination) Act 2013 prevents companies and partnerships from removing a director or partner by reason of mental incapacity. This means, a company or partnership could be left with a director or partner who is mentally incapable.
The Equality Act 2010 prevents business from discriminating against directors or partners on the grounds of disability including mental disability.
Unfortunately, many business owners do not think about what would happen to their business if they became incapable of running or making important day-to-day decisions either through physical or mental incapacity. Would your business be able to continue to operate?
In such circumstances, who will authorise the payment of bills, sign cheques, service a business loan or pay salaries? Don’t just assume that a family member or a business colleague will automatically gain the authority to make these decisions on your behalf. This assumption could leave your business exposed to risk.
The Solution – this is easy
All business owners should protect themselves and their business by having a Lasting Power of Attorney (“LPA”). Not only will it save time, it’ll help ensure that everything runs smoothly in your absence.
What would happen if you do not have an LPA?
There is nobody appointed to run your business or undertake your duties as a Director. Banks can and do freeze bank accounts, call in loans and cease overdraft facilities. Other Directors cannot just simply assume your role and responsibilities, and equally, in the case of sole traders neither can partners or family members.
The only option for the business would be to apply to the Court of Protection seeking the appointment of a deputy. This is a costly and slow process! During this time, there would be no one who could lawfully make financial decisions on that person’s behalf and the bank accounts could be frozen until the deputy is appointed. This will significantly impede the day-to-day running of the business and in some cases could threaten its existence as a result the business becomes exposed to failure or winding up.
The Court of Protection would appoint a Deputy (often a professional Deputy) to manage the business affairs on your behalf. This is likely to take months to set up, and is costly on an ongoing basis exposing the business to an even greater risk of failure. The costs of deputyship can cost the business anywhere between £5,000 – £8,000 plus ongoing charges. This person could be a stranger to the business and would have no consideration for any other people involved other than the person who has lost capacity.
Is a Business LPA Right for me?
An LPA enables you to appoint someone (an “Attorney”) to look after your financial affairs if you were to become incapable of dealing with them yourself. You decide on who will deal with your affairs on your behalf and you can place restrictions on and give guidance to your Attorney(s) on how they should deal with your business affairs
If you are making an LPA in respect of your business affairs, it makes sense to appoint someone who is familiar with the business. For example, the partners in a business could appoint each other, or you could appoint someone in your family who knows the business well. You can also appoint more than one Attorney who could act jointly or separately from each other. The choice is yours, but it’s not one to be taken lightly.
It really makes so much sense to apply for an LPA now and never have to use it. Think of it as an insurance policy that keep your business running successfully.
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 more 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.
The Expenses are Tax Allowable!
The great news is that the cost of the LPA is tax allowable, so it makes sense all around to take advice and safeguard the future of your business and make a Lasting Power of Attorney.
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