Should Every Business Owner Have a Separate Lasting Power of Attorney for Their Business?

Running a Successful Business Requires Careful Planning

Most business owners insure their premises, protect against cyber threats, prepare shareholder agreements and put succession plans in place. However, one area that is frequently overlooked is what would happen if the owner suddenly became unable to make decisions due to illness, an accident or a loss of mental capacity.

Without a clear plan in place, important business activities could quickly come to a halt.

• Who would authorise staff salaries?
• Who could access the business bank account?
• Who would sign contracts?
• Who would deal with suppliers, customers or HMRC?

Many people assume that a spouse, family member, business partner or fellow director would automatically be able to step in.

Unfortunately, that is not usually the case.

Without the appropriate legal authority, even those closest to you may have no legal right to make decisions on your behalf. This can leave your business exposed to unnecessary disruption at precisely the time it needs stability.

A carefully drafted Business Lasting Power of Attorney can form an essential part of your business continuity planning, ensuring that someone you trust has the legal authority to act if you are no longer able to do so yourself.

Key Takeaways

• A Business Lasting Power of Attorney can help protect your business if you lose the ability to make decisions.
• You can have separate Property and Financial Affairs LPAs for your personal finances and your business interests.
• Different attorneys can be appointed to manage different responsibilities, allowing you to choose the most appropriate people for each role.
• Planning ahead can help avoid costly and time-consuming Court of Protection applications while helping to ensure your business continues to operate smoothly.

What Is a Lasting Power of Attorney?

A Lasting Power of Attorney (LPA) is a legal document that allows you (known as the donor) to appoint one or more trusted individuals (your attorneys) to make decisions on your behalf should you lose the mental capacity to do so yourself. A Property and Financial Affairs LPA may also be used with your permission whilst you still have capacity.

There are two different types of Lasting Power of Attorney.

Property and Financial Affairs LPA

This allows your attorneys to deal with matters including:

• Managing bank accounts
• Paying household and business bills
• Buying or selling property
• Managing investments
• Operating financial accounts
• Dealing with pensions
• Handling tax affairs

Health and Welfare LPA

This allows your attorneys to make decisions relating to:

• Medical treatment
• Care arrangements
• Living arrangements
• Daily welfare
• Life-sustaining treatment (where authority has been given)

Whilst many people create LPAs to protect their personal affairs, business owners should also consider how their business would continue if they were unable to make important commercial decisions.

Is There Such a Thing as a Business Lasting Power of Attorney?

This is one of the questions we are asked most frequently.

Strictly speaking, there is no separate type of Lasting Power of Attorney called a “Business LPA”.

Instead, a Business LPA is simply a Property and Financial Affairs Lasting Power of Attorney that has been carefully drafted so that it applies only to your business interests.

This allows your personal affairs and your business affairs to be managed independently where appropriate.

For many business owners, this provides greater flexibility and allows them to appoint different attorneys with the most appropriate knowledge and experience for each role.

Why Is a Business LPA So Important?

Every business depends upon people being able to make decisions.

If you suddenly become unable to act, numerous day-to-day activities may immediately become difficult or impossible.

For example:

• Paying employees
• Authorising supplier invoices
• Signing commercial contracts
• Accessing business bank accounts
• Negotiating with customers
• Managing commercial property
• Renewing insurance policies
• Dealing with HMRC
• Approving expenditure
• Managing staff

Even if your spouse or business partner knows exactly what should be done, they may have no legal authority to do it.

The consequences can include delayed payments, interrupted cash flow, contractual issues, disruption to customers and uncertainty for employees.

Having the appropriate legal authority in place before it is needed can make all the difference.

Do You Need Separate LPAs for Your Personal and Business Affairs?

In many cases, the answer is yes.

Although one Property and Financial Affairs LPA could potentially cover both your personal finances and your business interests, this is not always the most appropriate arrangement.

The person you trust to manage your household finances may not have the commercial expertise or experience required to run your business.

Similarly, a trusted business partner or fellow director may not be the individual you would wish to make decisions about your personal finances.

For this reason, many business owners choose to prepare two separate Property and Financial Affairs LPAs:

• One dealing with their personal financial affairs.
• One dealing solely with their business interests.

Having separate LPAs allows you to appoint the right people for the right responsibilities, whilst clearly defining the extent of each attorney’s authority.

This can reduce the risk of conflicts of interest, minimise uncertainty and help ensure that both your personal affairs and your business continue to be managed effectively.