In such circumstances, you have to consider who will authorise the payment of bills, sign cheques, service a business loan or pay salaries. Do not assume that a family member or a business colleague will automatically gain the authority to make these decisions on your behalf, they will not and this assumption will leave your business exposed to risk.
Sole trader businesses do not usually have a separate legal entity from the principal. This means that appointing an attorney under a business LPA will be an effective way for you to make provision for the continuity of your business, in the event that you are incapacitated.
If you are a partner in a partnership of several partners, consideration must first be given to the terms of the partnership agreement. Some partnership agreements may already include provision for what would happen should one of the partners become incapacitated. If such a provision exists, it may already adequately provide for the continuity of the business, in which case, a business LPA may not be necessary. However, if you are in doubt about the provision made in the partnership agreement, or you feel that an LPA may be required, you should seek advice on the wording of the LPA, to ensure that it does not conflict with the provisions already made in the partnership agreement.
Directors of companies and articles of association
As a director of a company, a review of the company’s articles of association is your first step because on many occasions, the company’s’ articles of association will provide for the termination of a director’s appointment in the event that the director loses capacity. This provision is designed to protect the company’s interests. If such a provision is not included in the articles of association, you may want to seek advice and consider amending the articles of association to include such a provision.
In the event you are the sole director of a small private company, the articles of association should not be drafted to simply terminate the director’s appointment as there would be no one else to continue running the company. In such circumstances, a Business LPA would be appropriate.
Separating your personal and business affairs
It is be possible to have just the one LPA appointing attorneys to manage your personal assets and your business assets. However, it may not be appropriate for the same person to make both personal and business decisions, due to a potential conflict of interests. You could consider making an LPA appointing certain attorneys to manage your personal assets, and others to manage your business assets. It is important however, not to create confusion regarding the scope of the attorneys’ powers, and the Office of the Public Guardian is likely to reject the LPAs’.
You can however make more than one LPA. You could consider making two for your personal affairs (health and wealth) and a separate LPA for your business affairs. Often, people like to keep their business affairs separate from their personal affairs.
If you are considering making separate LPAs, each should contain specific instructions limiting the scope of the attorneys’ powers – for example, a personal LPA should specify that your attorney would have general power in relation to your health and personal financial matters, except for the relevant business assets in respect of which you have executed a separate business LPA. Your business LPA should contain specific instructions in this respect, too. Your attorneys will then be clear about their powers and will not encroach on each other’s responsibilities and decisions.
In the event you do not make a Business LPA
If you do become incapacitated and unable to make business decisions in the future and have not made a Business LPA, it may become necessary to make an application to the Court of Protection for the appointment of a deputy to act on your behalf. The process can be expensive, and there is no guarantee that the Court of Protection will choose someone you would have preferred. It could also take in excess of six months before a deputy is appointed, during which time your business may be extremely vulnerable, suffer losses due to its corporate incapacity and at be at risk.
When considering a Power of Attorney for business it is advisable to choose an attorney with a good business acumen whom can focus specifically on your professional obligations rather than your personal affairs. This should be someone whom also has a sufficient understanding of your business, however you must ensure that the appointment does not conflict with the overall running of the business or cause voting issues.