An LPA is a legal document that allows you to nominate and authorise a person of your choice to make and implement decisions on your behalf. This person is known as your Attorney.
With these hugely important documents in place, you can be certain that management of your business could continue even if you lost the capacity to make decisions yourself. Without an LPA in place there would be no one with authority to take control of the running of the business.
When setting up your business, whether as a sole trader, partner or director, you may well not consider the possibility of losing your mental capacity. But what would happen if you became incapacitated and who would manage the running of your business?
Many people assume that a family member or other member of the business who be able to assist but this is simply not the case. Thus is a dangerous assumption to make as no one has an automatic right to deal with your business affairs and so, without the legal authorisation required, the effects could be huge. Documents could go unsigned, contracts lost, staff unpaid and accounts inaccessible. Many bank would freeze your business accounts if they became aware of a signatory losing capacity and, as you can appreciate, this would have a drastic negative effect on the day to day running of your business.
No business owner wants to experience or risk these issues and therefore needs to have a continuity plan. A key part of any such continuity plan is the implementation of a business LPA. Do not your leave your business exposed to risk – you need to protect the interests of you, your colleagues and your business.
By creating and registering a business LPA, you can choose who should manage your business finances, assets and affairs if you became unable to do so. You should already have a personal LPA in place but, as your personal attorney is often not someone who would be qualified to run your business, you also need to have a separate LPA that relates specifically to your business.
Clearly your chosen attorney needs to have the necessary knowledge, skills, qualifications and experience to run your business and also they need to be someone that you trust implicitly to make the decisions as you would yourself. For this reason, when dealing with partnerships, it is most common to appoint another partner within the business to be appointed as your attorney.
For sole traders who lose capacity it would not take long for the business to crumble if there was no one else authorised to manage the same. By appointing an attorney you can ensure your business continuity should capacity be lost. Bear in mind that in the event of a serious injury, you might lose capacity for a period of time but could regain this as you heal. If you had a business LPA in place, someone would be able to continue to management of the business whilst you are unable to do so. Then, when you were ready to return, the business would still be up and running which would be very unlikely without an LPA.
For those in a partnership, it is necessary to check the partnership agreement as it may already make provision for a partner lacking capacity. If not, or if further provision is required, then a business LPA would need to be set up and advice taken on the wording of the same so as not to conflict with any provisions that are already in place. For directors of a company this would also apply to the articles of association.
If you do not have a business LPA in place and you lose your mental capacity then an application for a deputyship order would have to be made with the Court of Protection. This is an expensive and very lengthy process and you will have no say in who is appointed to make your decisions for you. This is not a satisfactory outcome for any business owner and, in the months it would take to appoint a deputy, your business would be at risk and would likely take a significant, if not ruinous financial hit.