Menu
By having a Lasting Power of Attorney (LPA) in place, business owners can have peace of mind knowing that their affairs will be managed according to their wishes if they are unable to do so themselves.
Business owners devote significant effort and time to developing their business, and their business often represents a substantial part of their personal wealth. This can pose risks: what happens if the driving force of the business dies or loses mental capacity? While succession planning on death is often fully considered, addressing the possibility of a business owner lacking capacity in the future is often overlooked. This is a key part of continuity planning for their business. They will still need to benefit from the business if they have an illness or injury and are less able to devote time to the business they have built.
An LPA is a legal document that allows a person (the donor) to appoint one or more individuals (attorneys) to make decisions on their behalf if they lose mental capacity. For business owners, having an LPA can be crucial, as it ensures that someone of their choosing, whom they trust, can manage their affairs if they become incapacitated.
An LPA can be invaluable if you lack capacity, but is also helpful if, for example, you have a period in hospital or an overseas trip; your attorney under a financial LPA can assist you while you have capacity, if you ask them to do so.
The provisions of the LPA should align with the governing documents applicable to the business, whether this is a partnership or LLP agreement or, in the case of companies, articles of association and any shareholders’ agreements. These documents may themselves contain provisions determining what happens if a stakeholder lacks capacity. The provisions of the LPA would need to reflect these, and interact in a suitable manner with those documents. It will mean that these need to be reviewed as part of putting the LPA in place.
Precisely how a Lasting Power of Attorney for Property and Financial Affairs (P&F LPA) will assist in the operation of your business in the event you lack capacity, will depend on whether your business operates as a:
In the case of owner-managed businesses or SMEs set up as limited companies, directors are also routinely the business owners in their capacity as shareholders, and this distinction will be considered when putting in place an LPA.
It is common for a donor to have two P&F LPAs in the event they own or have a significant controlling interest in a business. This is because the people they trust to manage their personal finances are often different from the people they choose to manage their business. If this approach is taken, it is important that the scope of each LPA is clearly defined, and they do not overlap.
That can be the case for many reasons, including:
Availability: Easing the burden on the attorneys by dividing the role into two is sometimes helpful. Managing personal finances and business operations for someone whilst also dealing with one’s own affairs (work and personal) can be demanding. Being an attorney can be time–consuming, even where no business is involved. Your attorneys should be accessible and able to step in to manage your affairs when needed. Avoid appointing individuals who have conflicting commitments, or who are unavailable for extended periods.
Understanding of your business: The person who has knowledge of personal finances may not have knowledge of the business operations. Your business attorneys should have a good understanding of your business and how it operates, so that they can make informed decisions on your behalf and ensure continuity in your business operations. If you are in a partnership or a shareholder in a company, there may be other partners or shareholders who are better placed to continue the management of the business.
Legal and financial knowledge: It can be beneficial to appoint attorneys with some level of legal and financial knowledge, especially if your business involves complex legal or financial matters. They will need to be able to navigate these issues effectively.
Multiple attorneys: You can appoint more than one attorney in any LPA, whether for personal finances or business decisions. This can provide checks and balances and ensure that decisions are made collectively. However, it is essential to choose individuals who can work together effectively and make decisions in the best interests of you and your business.
There could be times for a limited company where what is in your best interests as a shareholder who lacks capacity (for example, a need for income to cover care costs) conflicts with the interests of the company or other shareholders. You therefore need to ensure you either have people who understand the business but would not be conflicted, or a suitable mix of attorneys who will work well together to achieve a balanced result.
Succession planning: Consider the long-term implications of your choices. If your chosen attorneys become unable or unwilling to act on your behalf, have a contingency plan in place for appointing replacement attorneys.
Equally, if your intention is that a particular individual inherits your business on your death or manages the business if you become incapacitated, you may want to consider appointing that person as your attorney. This arrangement would allow them to manage the business in the interim and ensure their inheritance is secure, whilst benefiting you for as long as is possible or appropriate.
Who you consider to be your attorney could include:
Family members or trusted associates: You may choose to appoint family members, close friends, and/or trusted business associates as attorneys. These individuals may have a deep understanding of your personal preferences and values, making them well-suited to act on your behalf. They may also work for or help in the business already.
Professional advisors: Consider appointing professional advisors, such as solicitors or accountants, as attorneys. These individuals have the expertise and experience to manage your affairs competently and may offer valuable insights and guidance. You may have developed good and long-term relationships with your business advisors which make them suitable people to appoint.
As a sole trader, you are the sole owner and operator of your business. However, if you become incapacitated and are unable to manage your affairs, having an LPA can be crucial for ensuring that your business interests are protected and managed appropriately. Here is how an LPA can be relevant for a sole trader:
An LPA allows you to appoint one or more trusted individuals to make decisions and manage your business affairs on your behalf if you become incapacitated. This ensures that your business can continue to operate smoothly, pay bills, manage contracts, and handle other necessary tasks.
Attorneys appointed under the LPA can handle financial matters related to your business, such as managing bank accounts, paying invoices, collecting payments from clients, and filing taxes. This ensures that your financial obligations are met, and your business remains financially stable.
Attorneys can represent you in legal matters related to your business, such as signing contracts, resolving disputes, or dealing with regulatory issues. This ensures that your business interests are protected, and legal obligations are fulfilled even if you are unable to personally attend to these matters.
When creating an LPA, you will need to carefully select individuals whom you trust to act in your best interests. These individuals should be reliable, competent, and capable of managing your business affairs effectively during your incapacity. They could be family members, friends, or professional advisors.
By having an LPA in place as a sole trader, you can have peace of mind knowing that your business affairs will be managed according to your wishes if you are unable to do so yourself due to incapacity. It helps ensure the continuity of your business operations and protects your interests during challenging times.
If you become incapacitated in the future and do not have an LPA, your family members or business partners will need to apply to the Court of Protection to appoint a deputy to act on your behalf. The process can be costly and time-consuming; a deputy’s appointment will take several months. It also means you have no say in who gets appointed. A business LPA enables you to put someone you trust in charge quickly and efficiently when it is vital to ensure the right people can step in.
An LPA can be relevant for you as company shareholder, especially if you have a significant stake in the business and want to ensure that your interests are protected in the event of incapacity. This is normally the case in owner-managed businesses or SMEs set up as limited companies, where the directors are also the shareholders. This distinction in an individual’s role will be factored into the preparation of the LPA, and the constitutional documentation of the company will be checked to ensure the correct application of the powers granted under the LPA.
Here’s how LPAs can be applicable to you as a shareholder:
You may appoint attorneys through an LPA to make decisions on your behalf regarding your shares in the company. This can include voting on important matters, attending shareholder meetings, and exercising other shareholder rights.
You can use an LPA to grant attorneys the authority to manage your shares. This may include buying or selling shares, receiving dividends, and handling any financial transactions involving your interests in the company.
In situations where you are unable to represent yourself due to incapacity, having an LPA in place ensures that someone you trust can step in and act on your behalf, safeguarding your interests and ensuring continuity in your relationship with the company.
You should carefully consider who you appoint as your attorneys. These individuals should be trustworthy, capable, and knowledgeable about your interests and the company’s affairs. It is common for shareholders to appoint family members, trusted advisors, or fellow shareholders as their attorneys.
Overall, an LPA for shareholders can be a valuable tool for ensuring that your interests in the company are protected and managed appropriately in the event of incapacity. It provides peace of mind for you and helps to ensure continuity in the management of your affairs.
Even if you are a minority shareholder in a private company, it is important to the operation of the business that you have suitable arrangements in place for the management of your shares in the event you lack capacity. If any decisions require unanimity of shareholders or your shareholding based on the overall shareholding creates a majority, then even if you are not a majority shareholder, your vote matters and someone should be authorised to exercise it if you cannot.
If the business is not entirely owned within the family and you own the company with unrelated parties, all of whom are key to the business, then you should consider key person insurance. Additionally, you should review the company articles and shareholder agreement to consider whether a mechanism should be implemented for the company or existing shareholders to purchase the shares of any shareholder who lacks capacity.
An LPA can play a significant role in your partnership or LLP’s operation, alongside partnership agreements, if the situation arises where one or more partners becomes incapacitated and unable to fulfil their obligations.
It is important for you to understand what the partnership or LLP agreement provides for in the event of a partner lacking capacity. Sometimes, buy-sell agreements or buyout provisions are included to provide a mechanism for the remaining partners to buy out the share of a partner who has lost capacity. There may be provisions in the agreement about whether attorneys can represent the partner who lacks capacity in terms of decision making to ensure their interests are protected.
The partnership or LLP agreement may or may not define what the partners consider a lack of capacity to be, and whether this must be for a certain period before steps are taken in relation to the partner who lacks capacity.
It is therefore important that any LPA for a partner in a partnership or LLP is prepared with an awareness of the provisions of the partnership or LLP agreement, and the LPA reflects these.
Here is how an LPA can be beneficial alongside a partnership or LLP agreement:
If the terms of the partnership or LLP agreement allow, you can use LPAs to appoint attorneys who will have the authority to make decisions on your behalf if you become incapacitated. This ensures that important decisions regarding the partnership can still be made, even if one or more partners are unable to participate.
Subject to the terms of the partnership or LLP agreement, having LPAs in place can ensure continuity in the operations of partnership in the event of incapacity. Attorneys appointed under the LPAs can step in to manage the affairs of the incapacitated partners, helping to minimise disruptions to the business.
The partnership agreement can specify the powers that the attorneys are authorised to exercise on behalf of the incapacitated partners. This might include managing partnership assets, signing contracts, making financial decisions, and representing the partnership in legal matters.
You should carefully consider who you appoint as their attorneys. These individuals should be trustworthy, capable, and familiar with the partnership’s operations. It is common for partners to appoint fellow partners, family members, or trusted advisors as their attorneys.
By having an LPA in place as well as a partnership agreement, you can protect you interests and ensure the smooth operation of the partnership in the event of incapacity. It provides peace of mind for partners and helps to safeguard the continuity of the business.
A specialist solicitor will be able to help you with structuring and drafting your LPAs and will manage the process of registering the LPAs with the Office of the Public Guardian.
If you have any questions or would like to discuss making an LPA, please contact our specialist Private Client team for an initial no-obligation consultation.
In order for us to direct your enquiry to the right person at TWM Solicitors, we need to know a little more about you and what are you looking for.
Thank you for contacting TWM Solicitors, your completed form has been sent successfully. If this is an enquiry we are able to assist with, one of our team will be in contact with you as soon as possible. Please note, this may not be until the next working day, and during business hours. If you require urgent assistance, please call: 0330 555 0440.