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Types of LPA
A business LPA takes the form of a property and finance LPA.
Why do I need a business LPA?
Many people understand why having an LPA in place is a good idea and choose their attorneys carefully, for example, their partner, children or other family members and friends. However, if you own a business and you become incapacitated or are otherwise unable to run it, would these people be able to take over the day to day management of your business and look after your business affairs in general if they are not a suitably experienced partner or fellow director?
It’s important to remember that if you become unable to manage your business, your business colleagues do not automatically gain the right to run it for you. So, a business LPA (which is made in addition to an LPA that you may already have in place), appointing an attorney who understands your business is vital. Everyday issues, such as paying your staff and suppliers, authorising bank transactions, placing new orders, completing contracts, etc., need to continue or your business could be at risk. Within the LPA, you can choose what duties your attorney can carry out and whether they have the right to act on your behalf temporarily, for example when you are abroad or if you have an accident, or permanently if you lose capacity.
What type of business can have an LPA?
The type of business you own will determine whether an LPA will be appropriate.
If you are a director of a limited company, you need to check your articles of association as some articles contain a clause that terminates a director’s appointment should they lose capacity.
If you are the sole director of the company, your appointment as director will not cease in the event of incapacity, so you will need to have an LPA in place to ensure that your company can continue.
Some partnership agreements include a clause that deals with the incapacity of a partner. If your partnership agreement does not have this clause, you are advised to put a business LPA in place and take advice to ensure that the terms of the LPA do not conflict with the rest of the partnership agreement.
Sole traders and self-employed
As a sole trader or self-employed person, your business is not a separate entity from yourself. You are your business. So, if you are ill or become incapacitated, you may not be able to make vital decisions that are needed to keep your business running – or to do whatever is necessary to ensure that it is wound up properly. You may think that a member of your family can do this, but without an LPA, they will not be able to make and implement decisions.
Appointing an appropriate attorney within a business LPA is the only way you can be sure that your business interests are protected.
Why can’t I have one LPA for business and personal affairs?
You may be able to – if the person or people you appoint as your attorneys can manage your personal and business affairs – and if you want them to, although the terms of your business LPA must not conflict with any other business agreements you have. However, there is a risk that you are leaving your business in the hands of someone who is not able to run it properly.
If you work in a regulated industry such as financial or legal services, you need to carefully consider who you will appoint as your attorney as you may not be able to appoint a family member to carry out business activities on your behalf. Your attorney would usually need to be someone who carries out a role in the same sector as you.
It is also possible to make one LPA that appoints different attorneys to deal with your business and personal affairs, but there is a risk of causing confusion about each attorney’s duties and the LPA could be rejected by the Office of the Public Guardian (OPG).
Will I still be able to manage my business if I have an LPA?
Yes, your LPA will only become active in certain circumstances – which will be decided by you. For example, if you are out of the country a lot, are otherwise unable to run your business or become incapacitated. Whilst you are willing and able, you can continue to run your business.
What happens if I don’t make a business LPA?
If you don’t have a business LPA and your articles of association or partnership agreement do not specify what should happen in the event of you losing capacity, someone will have to make an application to the Court of Protection for a deputyship order. This could have huge consequences, as these orders can take up to six months to obtain – as well as being expensive – which means that your business could have no one to manage it for that amount of time. Also, you will have no control over the decision as to who runs your business and the Court of Protection may choose someone who you would not have chosen yourself.
How can Graysons help?
Anne Rogers is head of Graysons’ private client team and has experience of helping people to protect their business interests by advising on, and writing, lasting powers of attorney. Please contact Anne to discuss how using a business LPA can help you to ensure continuity of your business should you not be unable to do so.