Most people are familiar with a Lasting Power of Attorney (LPA) for personal matters, which allows a trusted individual to make decisions on your behalf if you lose the capacity to do so. A Business Lasting Power of Attorney operates on the same principle but is specifically designed to manage your business affairs. It allows someone to make important decisions related to your business finances, operations, and legal matters should you become unable to do so yourself.
Why Is a Business Lasting Power of Attorney Important?
A Business LPA ensures the continuity of your business operations if you are temporarily or permanently incapacitated. It enables someone to make essential decisions, such as paying staff, managing financial obligations, and signing contracts — helping avoid disruption and potential financial loss.
Who Should Consider a Business Lasting Power of Attorney?
Business LPAs are particularly valuable for:
- Sole traders
- Single-director limited companies
Partners in partnerships and directors in multi-director companies may also benefit; however, the terms of the partnership agreement or the articles of association may contain provisions for dealing with the incapacity of a partner or a director, rendering a business lasting power of attorney unnecessary in this instance.
How Does a Business LPA Differ from a Personal LPA?
A Personal LPA deals with an individual’s personal welfare or finances.
A Business LPA is focused solely on the management of a business.
It can be tailored to suit the specific needs of the business and may include:
- Ensuring business continuity
- Managing financial matters
- Negotiating contracts
- Completion and enforcement
- General business operations
The Mental Capacity Act 2005
Business LPAs must comply with the Mental Capacity Act 2005, which governs the donor’s capacity.
Sections 9 onwards of the Act outline the requirements for valid LPAs, including the appointment of attorneys (“donees”), restrictions, scope, limitations, and revocation.
Informing Key Stakeholders
It is important to inform others involved in the business’s management of the existence of a Business LPA, for example, the business’s bank and professional advisers.
Scenarios Where a Business LPA Is Invaluable
Scenario 1: Unexpected Incapacity
- Situation: You, as a business owner, are incapacitated due to illness or accident.
- BLPA Solution: Your attorney steps in to manage essential tasks like signing cheques, paying suppliers, handling bank accounts, and making important decisions — minimising disruption and financial losses.
- Example: The attorney ensures salaries are paid, services business loans, and signs contracts.
Scenario 2: Ensuring Business Continuity
- Situation: You are a director or shareholder, or a partner in a partnership, and you become incapacitated, should your partnership agreement/articles of association outline a procedure which deals with incapacity.
- BLPA Solution: A Business LPA allows your attorney to maintain operations and liaise with others as needed.
- Example: They may manage assets, handle tax affairs, or make staffing decisions in coordination with remaining partners or directors.
Scenario 3: Absence Due to Travel
- Situation: You’re a business owner, and frequent travel is affecting your ability to manage certain business matters while abroad.
- BLPA Solution: Your attorney can take care of operations while you are away, allowing you to focus on your travels.
- Example: They may manage business contracts, client relations, or represent you at business meetings.
Scenario 4: Removing a Partner or Director
- Situation: A partner or director becomes incapacitated and cannot consent to being removed.
- BLPA Solution: A Business LPA may empower your attorney to remove the incapacitated party when a partnership agreement or articles of association do not have provisions for dealing with incapacity.
- Example: The attorney initiates the necessary legal steps to remove the incapacitated partner/director.
Legal Advice Is Essential
If you’re considering putting a Business Lasting Power of Attorney in place, it’s vital to seek legal advice. Legal professionals can ensure your BLPA complies with current legislation and reflects the unique needs of your business. Contact our lasting powers of attorney solicitors in Surrey at Howell Jones today for expert guidance.
