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InFocus

The benefits of a lasting power of attorney for your business

It is difficult to contemplate that you could potentially lose mental capacity; however, it is part of responsible business future-proofing to put effective protections in place ahead of time to ensure that your affairs can be taken care of if the unexpected should occur

It is difficult for anybody to contemplate that they could lose mental capacity, particularly at a time when they are fit and well. It is particularly challenging for those in positions of responsibility, such as business owners, to consider who might step up if they are not able.

The thought of losing mental capacity for many people is something they associate with old age and chronic illnesses, such as dementia. However, mental incapacity can affect individuals at any stage of life and none of us know what the future will hold. It is therefore a part of responsible business future-proofing to put effective protections in place ahead of time to ensure that your affairs can be taken care of if the unexpected should occur.

What is a lasting power of attorney?

A lasting power of attorney (LPA) is a legal document that allows a person to choose an individual or individuals (attorneys) to act and make decisions for them, should they become unable to do so in the future.

There are two types of LPA:

  • The first covers property and financial decisions (including those decisions connected to businesses)
  • The second covers health and welfare decisions for the individual personally

These documents allow the maker (the person the LPA is for) to retain control of their affairs by choosing who they wish to act for them, and when and how they can act.

Multiple lasting power of attorney’s can be created to cover the same individual and the same period of incapacity, allowing business and personal affairs to be managed separately

Multiple LPAs can be created to cover the same individual and the same period of incapacity, allowing business and personal affairs to be managed separately by appropriate individuals.

LPAs must be made at a time when the individual has sufficient mental capacity. For that reason, it is not advisable to ignore this important planning exercise as circumstances may overtake and you may find yourself unable to pursue this avenue.

LPAs can last throughout the individual’s lifetime (though can be revoked while they have capacity) and will prove to be a valuable investment if the worst should happen.

How can an LPA benefit my business?

How an LPA could benefit your business depends on your ownership structure.

Sole traders

You are your business, and your business does not have a separate legal personality. As a result, any incapacity which affects you has a direct impact on your business. Your bank accounts may not be accessible, bills and contractors could be left unpaid and your business could grind to a halt.

An LPA would allow you to appoint people you trust to continue to make decisions to keep the business running.

Company directors

As a director, you are responsible for the decision making and management of the business and a loss of mental capacity could have a devastating impact on company functions. This may impact essential decisions such as authorising payroll and completing on an important contract.

The role of a director is a personal one and cannot be delegated under a lasting power of attorney

The role of a director is a personal one and cannot be delegated under an LPA. As a result, it may be necessary to terminate the individual’s appointment as a director if they lose mental capacity. How this can be effected will depend on the company’s articles of association and care should be taken to review any bespoke articles of the company.

In the absence of any express authority to remove a director due to incapacity, shareholders have the power to remove the incapacitated director under section 168 of the Companies Act 2006. An attorney who acts on your behalf as a shareholder may have voting rights on your behalf (see below).

Shareholders

As a shareholder, you hold a beneficial interest in the business. Your interest is not lost by virtue of incapacity, and you can still receive dividend payments. However, you would not be able to transfer, dispose of or otherwise deal with or vote on your shares.

If you have an attorney under an LPA, they will be able to vote on your behalf as a shareholder, unless this is restricted in the LPA, company articles or any shareholder’s agreement. It is therefore vital to give careful thought to who may be able to act for you in those circumstances and whether this would be appropriate for the business.

Partners in a partnership

The impact of incapacity on the partnership depends primarily on the terms of any partnership agreement. As with directors, partners cannot delegate personal performance. Whether or not decisions can be made by any attorney would depend on whether the activities and duties of the partner are personal to the individual.

Top tips

  • Get a full suite of legal documents for your business: just as “key man” life insurance may play a part in your business protection, so too should bespoke agreements and suitable articles of association
  • Plan ahead with LPAs, both personal and business
  • Choose carefully: not everyone will be suited to the responsibility of acting as an attorney. Trusted individuals with the appropriate skills to manage your affairs are generally the preferred choice. Professional attorneys can ensure independence and expertise to deal with your affairs
  • Seek advice early if you are unsure of what the implications might be for you and your business if a key individual loses capacity

Tonina Ashby

Tonina is a partner at HCR Hewitsons. Tonina heads up the older and vulnerable persons team at Harrison Clark Rickerbys. She supports vulnerable and incapacitated clients, and their families, to navigate complex areas such as care funding, Court of Protection, safeguarding and financial abuse. She is also a Dementia Friends Ambassador for Alzheimer’s Society.


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