RJS Solicitors |
February 23, 2023 |
3:23 pm |
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Why is it Needed?

If you are a business owner, a partner in a partnership or a Director of a Company, it is vital that you ensure the continuity of your business should you become unable to work due to physical incapacitation, or worse, mental incapacitation.

A Business Lasting Power of Attorney (LPA) enables you to appoint competent people who you trust, who are familiar with your business and your business strategy to take decisions on your behalf, during your incapacitation, referred to as ‘your attorney(s)’. As with other LPAs the Business Lasting Power of Attorney must be registered for use with the Office of the Public Guardian.

Do you need a Business LPA if you have a Property and Financial Affairs LPA?

A Property and Financial Affairs LPA enables you to appoint people you trust to manage your personal property and financial affairs. This LPA can also be used to manage your business affairs but normally people want to keep their home and work life separate and have both types of LPA.

Often family members are appointed as attorneys to manage your personal property and financial affairs, but do your family have the knowledge and business acumen to carry out your duties in your business?

A Business LPA differs from a Personal Property and Financial Affairs LPA because it will be tailored to the nature of the business. For example, its Articles of Association and other legal considerations such as partnership or shareholder agreements. These, together with the general aims and interests of the business and any of its directors, partners or shareholders all need to be considered when the Business LPA is drafted.

What do I need to consider and include in a Business LPA?

Sole Trader

A sole trader business will almost certainly close if the trader loses their mental capacity or is absent from work for a lengthy period due to physical infirmity or COVID. It is essential for the business to continue successfully that the trader appoints the right people to act for him and gives them clear instructions on what they have legal authority to do.

  • Who do you trust to run the business and is accounts or to take the decision to wind it up and sell it?
  • Do your attorney(s) have the power to authorise the payment of bills, order goods and/or materials, sign cheques, service a business loan, hire or fire staff or pay salaries/wages?
  • Do you want to set a limit on the value of goods and/or materials that can be ordered?
  • Do you want to set a stockholding limit and/or vehicle/equipment replacement limit?
  • Do you want to state your preferences for a business strategy?

Companies, Partnerships and LLPs

For almost all companies, partnerships and LLPs the Mental Health Discrimination Act 2013 creates a situation that can have disastrous results for a business. This is because if a director or partner loses mental capacity, they cannot be removed as a director (unless so provided in the Articles of Association). The Business LPA needs to work in conjunction with your business’s Partnership Agreement and company’s Articles of Association.

You should:

  • Review your Partnership Agreement or your Company’s Articles of Association to see if their provisions allow:
  • For people to be legally appointed to act for you if you are absent from the business due to physical infirmity or mental illness; and
    • For your removal as a director or partner if you lose mental capacity.
  • Amend your Partnership Agreement or your Company’s Articles of Association, as necessary, to ensure their provisions allow for the operation of the Business LPA and your removal as a director or partner if you lose mental capacity.
  • Review your responsibilities and duties as a partner or director to:
  • Appoint people who you trust, who are both competent and commercially astute, to act as your attorneys;
    • Give clear instructions to your attorneys on what you legally empower them to do in the operation of your business; and
    • State your preferences for decisions at Partnership and Board Meetings

What happens if I do not have a Business LPA?

If you were to lose mental capacity without having made a Business LPA, an application would need to be made to the Court of Protection for someone to be appointed as your deputy.

This is a costly and time-consuming process, during this time your business’s operation is at risk as there is no-one legally empowered to act for you. You might end up with someone appointed as your deputy who you would not have chosen.

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