What is a Lasting Power of Attorney?
A Lasting Power of Attorney (LPA) is a legal document that allows the person making the LPA (the Donor) to appoint a trusted person (or people) known as the Attorney(s), to make decisions on their behalf.
A Health and Welfare LPA can only be used when a person does not have capacity to make certain decisions for themselves, whereas an LPA for Property and Financial Affairs can also be used if you have capacity, if this is what you specify in the document, and as such these can be extremely useful documents for business planning.
When do I need to consider making a Lasting Power of Attorney?
It is possible to make two LPAs for financial decisions, so that a Donor’s business and non-business matters are separated. It may be appropriate, for example, for a Donor’s spouse and/or children to be an Attorney for non-business matters, but they may not be best placed to make decisions in relation to the business if they have limited experience with the business itself, or if they are already a joint key decision maker or owner of it.
LPAs are often only considered in later life, commonly when a person is retired and when capacity issues start to become more relevant, but in all cases, and particularly for a business owner, thought should be given to making an LPA much sooner, particularly for farming and rural business clients, where the business owner may have no plan to retire, and where there may be higher physical strains and risks arising out of the workplace.
When might a business owner need someone to make decisions on their behalf?
An LPA is useful when someone loses mental capacity, for example due to a degenerative illness, but for business owners or key decisions makers, a business LPA could be drafted to enable an Attorney to make decisions or execute documents due to physical incapability, such as if the business owner was abroad and unable to get home due to unforeseen circumstances, or if they were rendered physically or mentally incapable due to an accident.
It may be that the constitution of the business already covers what would happen in the event of incapacity of a business owner, for example, in a Partnership Agreement, and so a review of any business governance documentation is also strongly recommended, to ensure that any plans already in place are appropriate.
What are the benefits of a Business LPA?
Ensuring Business Continuity
By appointing a trusted attorney, business owners can ensure that the business operates without interruption, even in their absence, helping to preserve the business’s reputation and stakeholder relationships.
Protection of Interests
Without an LPA, there may be no automatic right for family members or colleagues to step in and make decisions, leaving the business vulnerable to risk and uncertainty. With an LPA in place, the chosen attorneys are individuals personally selected by the business owner, who are chosen to make decisions in the best interest of the business.
Financial Management
A Business LPA can allow the attorney to handle financial matters such as authorising payments, servicing loans, and paying salaries, helping to prevent cash flow disruptions and fulfil obligations to creditors and employees in a timely manner. When dealing with banks, creditors, and contractual agreements, an LPA is a widely recognised document which provides clarity on authority and decision-making power.
Flexibility and Customisation
Business LPAs can be customised to suit the specific needs of the business, whether a sole trader, a partnership or a company.
What happens if you don’t have a Business LPA in place?
If a person loses capacity without an LPA in place, it may be necessary for an application to be made to the Court of Protection for a Deputy to be appointed, who can then make decisions on behalf of the incapacitated person. This process takes time, and can be expensive, and there is no guarantee that the Court will appoint the person that the incapacitated person would have chosen as their Deputy. This can be avoided by having an LPA in place.
How Moore Barlow can help
The implementation of a Business LPA can secure the stability of a business, and gives a business owner or key decision maker peace of mind that plans are in place should unexpected situations arise in the future.
If you would like to discuss Lasting Powers of Attorney, including Business LPAs, Claire Davies, in the Private wealth team would be delighted to hear from you.
If you have found yourself in a situation where a loved one or business partner has lost capacity without a Lasting Powers of Attorney, we can still help. Please call our Court of Protection Team on 02380 718000 or visit the Court of Protection webpage.
