Why have a Lasting Power of Attorney (LPA) for my business?
All business owners, whatever the size of business, should have in a place a Lasting Power of Attorney (LPA), which appoints a suitable attorney to make decisions on the day to day running of the business to help mitigate against operational risk if the business owner is either unavailable or becomes incapacitated or is lacking in mental capacity.
An LPA serves to protect the interests of the business owner and his/ her business- no one can predict what the future holds unfortunately!
What is a business lasting power of attorney?
A business Lasting Power of Attorney (LPA) is different from the usual standard Power of Attorney which is more commonplace. The main difference is that if a business owner loses decision making capacity, then whilst they may have a standard power of attorney in place appointing a family member or spouse to deal with their own financial affairs, this may not be the appropriate individual to continue that person’s business operations.
Risks to a business if there is no LPA in place
- Key business decisions could be delayed if a person lacks capacity to make them
- Bank accounts could be frozen, especially in the event of a sole director
- Investors may get spooked in the event of something happening and seek to pull their investments
- Contracts / arrangements which may have been signed or entered into by someone who lacked capacity may have an enforceability issue
Key considerations for a business LPA
- Choose your attorney wisely
- Does the attorney have sufficient knowledge about the business to be able to make key decisions if required?
- Do you trust that person to make decisions?
- are they of a suitable age?
- Articles of association
- Do they allow for the appointment of the attorney?
- Do they stipulate that a director has to resign if a director becomes incapacitated?
- Conflicting provisions may need amending to ensure the LPA is allowed to be effective
- Conflicts between a personal LPA and the business LPA
- Some business decisions could affect family members personally depending on what action is taken.
- It is important to take time to choose the right person.
- Is the business made up of different areas / group companies?
- It might be best to consider having different LPAs for different areas of the business if some people who you would choose to be an attorney are better suited in certain areas because of their knowledge and experience in a particular area of the business
Characteristics of a business LPA
Every business is unique, so it is not a case of ‘one LPA fits all’ and it is vitally important to include bespoke provisions which suit your business. You should consider:
- The role you wish the attorney to play
- Legally binding instructions setting out which decisions the attorneys are allowed to deal with
- Any areas of the business where the business owner does not want the attorney to act
- How far do the attorneys powers go? Can they employ people if there is a specific skills shortage for example?
Get expert advice
Make sure you have provided for the unknown so you are not putting your business at risk.
If you have any questions regarding Business LPAs please contact Sarah Bailey in the Corporate team at firstname.lastname@example.org who will be happy to help.