What is an LPA?
An LPA is a legal document that allows you (the donor) to appoint representatives (attorneys) to make decisions on your behalf. There are two types of LPA: Property and Financial Affairs LPA and Health and Welfare LPA. Both types must be registered with the Office of the Public Guardian before they can be used. Further information about drawing up an LPA can be found here.
What is a business LPA?
If you already have LPAs in place, you may feel as though there is nothing further for you to consider. However, if you are a business owner, it is important to consider what would happen if you were unable to make decisions in respect of your business. This situation could arise as a result of incapacity and this is commonly what one thinks of when considering the use of an LPA. However, an LPA can assist more widely and can ensure that your attorney can act on your behalf if you are travelling abroad for an extended period, for example, or you are incapacitated due to medical or other reasons. Business LPAs are an important part of effective contingency planning. A business LPA will ensure that your business can continue to operate should you become temporarily or permanently incapacitated or unavailable. It will provide certainty to relevant parties, such as shareholders, creditors, employees and clients or customers. A business LPA will also provide peace of mind to your family and loved ones that your business can continue to operate and provide income.
Do I need a business LPA?
It is possible to have a single LPA for both your business and personal financial affairs. However, this is not recommended. Often, the people who can look after your personal affairs, will not have the relevant skills, knowledge and expertise to protect the business. They may not understand the market in which the business operates, and the product or service offered. Appointing the same person to deal with your personal and business affairs could also, potentially, create a conflict of interest. Fortunately, it is possible to have more than one LPA in existence and therefore the solution is to create a separate LPA for your business affairs. An LPA can be tailored to your business and you can specify decisions your attorneys can make on your behalf. Business owners with interests in multiple businesses can have separate LPAs for each of their business interests.
What else do I need to consider?
Sole traders, partners in a partnership and company directors should check whether their legal documents cover incapacity.
Partnership agreements often set out what should happen when a partner is physically or mentally incapable of acting. Directors of companies should consider the articles of association and the shareholder agreement, if relevant, carefully. A sole trader is unlikely to have a separate entity and so a business LPA could be an appropriate way of ensuring that the business continues.
What are the potential consequences of not having a business LPA?
If you were to lose capacity without having made a business LPA, an application may have to be made to the Court of Protection for somebody to be appointed to make decisions on your behalf (known as a deputy). This can be both costly and time-consuming and until such an order has been made by the Court, your business could be left in a precarious position. Bank accounts may be frozen, suppliers may not be paid, and contracts not fulfilled. The business and assets could be at risk.
Unexpected incapacity and absence has the potential to cause immense damage and disruption to a business. Having proper contingency measures in place will ensure that your business can continue to operate should you be unable to make decisions yourself. At Moore Barlow, our Private Wealth team work closely with our Corporate team and we can offer comprehensive advice on protecting your business from the risks associated with incapacity or absence.