Business LPAs.

Many people have Lasting Powers of Attorney (LPAs) in place in case they become incapacitated, for example due to illness. However, a ‘business lasting power of attorney’ is less well known. This article introduces Business LPAs and how they can assist business owners in planning for unforeseen events.

What is a BLPA?

A lasting power of attorney appointing a person or persons (the attorney(s)) to make decisions regarding your business in the event that you either lose capacity or with your consent whilst you are unable to actively run the business (e.g. if you were in hospital).  A business LPA is separate from any that may be made with regard to your private affairs.  It is often desirable that your personal and business finances be handled by different people, should you become unable to manage them yourself. Most importantly having the same person dealing with both your personal and business affairs could create a conflict of interests that could potentially mean that the LPA is ineffective.

Why make a BLPA?

As well as the more common reasons for putting LPAs in place such as dementia, there may be events beyond your control which prevent you from attending to business for instance global epidemics such as the coronavirus which has prevented business people leaving China followed by quarantine, civil unrest or terrorism, or a natural disaster. Alternatively, you could have an accident where you are not able to conduct business. Issues which may arise if you do not have a BLPA and lose capacity include:

• Frozen Bank account – There is a risk the business bank account may be frozen and loans or overdrafts recalled if you lose capacity.
• Voided or voidable contracts – If you lack capacity, you may not enter into lawfully enforceable contracts. 
• Enforceable contracts – If you lack capacity and a third party is unaware of your incapacity, that third party may enforce the contract against you.  Depending upon the nature and performance of the contract, this may place your business and your business’ assets at risk.
• Regulatory breaches – Loss of capacity may result in intervention by the regulatory body and closure of your business.
• Statutory breaches – If a co-partner, member or director becomes aware, or reasonably should have been aware that you lack capacity, a duty arises on them to assist and protect you and your financial interests from any potential exploitation. Failure to do so, may result in them potentially becoming liable for the consequences arising.
• Directors lacking sufficient capacity – If you act as a director and you lack capacity, you may no longer be able to take the actions ordinarily required to run the business and may breach the companies act.

However, the structure of your business is an important consideration in whether to put in place an LPA.  If you operate as a sole trader, it should be straightforward to implement. If you are in partnerships, you should check the partnership agreement which may already include provisions for a partner becoming incapacitated. If there is no such provision, and you decide to implement a business LPA, you should still take professional advice on the terms of the LPA, to make sure it doesn’t conflict with any other aspects of the partnership agreement.

For directors of companies, the articles of association and/or shareholders’ agreement often cover incapacity and state that the director will cease to be appointed in the event of incapacity. This is often done to protect the company’s interests and if such a provision is not in your articles of association or shareholders’ agreement, you may want to include one.  Our corporate team can assist with any amendments that may be required or help put such agreement in place.

Choosing your attorneys

In some cases, the attorney(s) you choose may need to be similarly qualified to you (e.g. an accountant, solicitor etc).  Legislation states that an attorney should be someone who is trustworthy, competent and reliable.  They should have the skills and ability to carry out the necessary tasks.

The attorney(s) you choose to appoint are there to make business decisions and your business. By signing the LPA form, the attorney is accepting their role and confirming that they understand the responsibility of such an important fiduciary position.

Memorandum of Wishes

We recommend a deed or memorandum is drafted alongside your BLPA expressing your views about how the BLPA should be operated.  Such a document would be stored with the BLPA and be used to provide guidance regarding your business to your attorney(s) in the event you lose capacity.

In the memorandum, your thoughts, beliefs and wishes should be sighted on items such as whether you wish the business to be sold or developed if you lose capacity and your wishes for succession and any other relevant item.

Whatever your situation, the importance of taking professional legal advice to ensure all your interests are properly protected cannot be overstated.

The contents of this article are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this article. © Mundays LLP