Important considerations for business owners
Mention Lasting Powers of Attorney (LPAs) and, for those that have heard of them, the reaction will frequently be that they are for the elderly and relevant only to family situations. Lesser known is the fact that LPAs are equally as important and applicable to those who hold and run their own business interests.
Why should Business Owners consider making an LPA?
There is often an unfortunate assumption that if you cannot manage your affairs for yourself (whether temporarily or permanently) your family members or next of kin would be able to act on your behalf by virtue of your relationship with them. The reality is that without a valid legal appointment of someone to act on your behalf, those individuals you might expect to step in for you would find themselves without the necessary authority to act.
If you are an individual with a business interest, whether that be as a company director or shareholder (or indeed both) a partner or trader, an LPA is a vital tool to ensure that that your chosen individuals are able to make the required decisions in relation to that business in the event that you cannot.
LPAs are therefore a highly useful risk management tool for businesses as they can be set up in such a way that they can be used not only when members of the business have lost capacity, but in the event that they are not around to take decisions for other reasons. This feature can be particularly useful for business owners who travel abroad, or who know that they will be incapacitated for some time perhaps, for example while recovering from surgery. The attorneys will be able to ‘keep the show on the road’ by paying creditors, running bank accounts, buying stock and making the day to day decisions which if left unattended could impact on financial success.
When considering granting an LPA it is important to think about who the most appropriate person might be to act. The person you might choose to run your personal affairs may well not be the same person you would want to run your business, and it is important to choose attorneys who are suited to the tasks they will be required to perform. That is not to say that it will always be appropriate to appoint fellow partners or directors however, and the best choice will always be circumstance-specific. What is crucial is that where there will be a split in roles and responsibilities, those boundaries are clearly defined within the LPA, or separate LPAs are put in place to deal with different matters.
Prior to putting an LPA in place a review of the constitutional documents (for instance the articles of association or partnership agreement) is important to ascertain whether there they contain provisions that deal with the incapacity of directors or partners. In that case the LPA would need to be carefully prepared to ensure compliance with them.
The consequences of failing to prepare
If something unexpected should happen before you have the protection of an LPA in place then all is not lost. An application to court can be made to have a deputy appointed to act on your behalf. The process of appointing a deputy is slow and can be costly (a cost which will be on top of and may pale in comparison to the impact the delay has on your business). Crucially the person appointed as your deputy may not be the individual you would have chosen, so this is no substitute for proper planning to ensure your business interests continue to be run as you would want.