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Lasting Powers of Attorney (LPAs) for business interests

judgment-enforcement-lawyer-uk-international-case-sm-300x270A business owner may have had the foresight to purchase Key Person Insurance, but this will not assist with the practicalities of running the business if that key person is ill or injured and unable to work or take decisions. For that reason, LPAs are frequently being used by prudent business owners to protect their business interests in the event they become incapacitated (it is common for people to make a specific LPA for business purposes and one for personal affairs).

An LPA is a device where a person (known as the donor) appoints one or more persons to act on their behalf (known as attorneys) usually where they lose mental capacity. LPAs are not necessarily limited to the donor losing mental capacity – for business owners who travel as part of their business, having a business LPA not limited to the donor’s mental incapacity makes sense to ensure the continuity of the business during their absence.

If a person does not make an LPA and loses mental capacity, an application to the Court of Protection is required to access their finances which often is expensive and time-consuming. In a commercial sense, this may also hold-up the running of the business (cheque signing, payment of wages, renewals of insurance etc.).

Each type of business must be assessed according to its structure. For sole traders, the owner can execute an LPA to appoint any attorney to act in the event of mental incapacity.

LPAs use in partnerships depends on whether there is a partnership agreement which allows for an attorney to act on behalf of an incapacitated partner. Where no such agreement exists an application to court may be needed to remove a partner who is incapable of adhering to the partnership terms.

For companies, directors cannot delegate their functions as a director unless the articles specifically provide otherwise. In many cases the director will also own shares in the company. Therefore a solution is for the owner of the shares to have an LPA to ensure business continuity by the attorneys who can appoint a new director in the event of the donor’s incapacity.

The donor should think carefully about who should be appointed as their business attorney. This is particularly the case where the power in the company is finely balanced. Someone with the same business view as the shareholder may be preferred.

There are many issues to consider when making a business LPA and professional advice should be sought before creating one. For further information about LPAs, for personal as well as business use, please contact Raveet or our private client team.


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