Do you know what will happen to your business, should you lose mental capacity? It is common misconception that your business partners, fellow directors or even family members will surely be able to sort out your business affairs, if the worst were to happen.

As mentioned in my colleague Marta’s blog “Lasting Powers of Attorney – a safeguard for your future” it is essential to ensure that you have prepared for the future, as some business operations may not be able to continue should you lose mental capacity. The delays and difficulties that will ensue would very likely quickly have an adverse effect on the business’s value, your colleagues and customers!

By putting in place a lasting power of attorney (“LPA”) that is specifically tailored to assist your business, you can legally appoint someone to deal with your business affairs on your behalf. More common are the general LPAs for personal health and care decisions and financial decisions, along with the old style Enduring Power of Attorney (“EPAs”). Once the property and financial affairs LPA has been registered, the attorney has authority to act in the donor’s place and “make all decisions about the donor’s property and affairs even if the donor still has capacity to make the decisions for themselves” (see paragraph 7.32 of the Mental Capacity Act 2005 and Code of Practice). Conversely, health and care LPAs can only be used once the donor has lost capacity.

However, you may not wish for the same individuals to assist you in your personal affairs as with your business affairs. For example, you may wish your spouse, children, other relations or close friends to act on your behalf for your personal affairs, but for your business would rather appoint persons who you know are capable of fulfilling the role in the way you would like, are familiar with your business and who have a knowledge and like-minded vision for its future.

The benefits of a business/commercial LPA

  1. Peace of mind that you have put in place a legal mechanism to deal with your business interests (note for companies it is imperative to check the articles of association, for partnerships check the partnership agreement or, if none, the Partnership Act 1980 will come into play, to ensure the LPA is consistent with these) if you are incapacitated, unavailable or lacking mental capacity.
  2. The ability to limit the powers to deal with your business interests as you see fit through the LPA.
  3. The knowledge that your business will keep ticking over so that, for example, important decisions can be made, wages can be paid, stock purchased etc.
  4. The safeguard that through the LPA your attorneys need to act in your best interests, encourage you to make decisions for yourself (if you can), act in good faith and, if in a professional capacity, according to the standards of skill and care expected of a person in that profession.
  5. You can choose whether you wish to pay the attorney e.g. professional attorneys such as solicitors and accountants would charge for their services and if you wish to appoint to pay a non-professional attorney, you can record this in the LPA.
  6. Business LPAs are especially useful for directors, due to recent changes making it difficult to remove a director who has lost capacity.

Food for thought

Of course, absolute trust in your chosen attorneys is important: they will be signing on for a range of time consuming, duties and responsibilities, along with access to your business accounts, clients and important documents.

Note that you can revoke an LPA should your views on who you would wish to act, or the appropriateness of the appointment of the trustees, change in the future. You should keep your appointment of attorneys for your business under review, and ensure that they would not face any conflicts of interest by their appointment. You may also wish to ensure that your business attorneys will work well with your personal attorneys should any problems arise.