Business Lasting Power of Attorney: Why Business Owners Should Put One in Place
Running a business involves planning for growth, managing finances, supporting employees and dealing with unexpected challenges. However, one question is often overlooked: what would happen to your business if you suddenly became unable to make important decisions?
A Business Lasting Power of Attorney (Business LPA) can form an important part of your business continuity planning. It allows you to choose trusted individuals to deal with specified business and financial matters on your behalf if circumstances prevent you from managing them yourself.
Importantly, business owners can have a Property and Financial Affairs LPA covering their personal finances while putting a separate Property and Financial Affairs LPA in place specifically for their business affairs.
This can help keep personal and commercial responsibilities clearly separated and allows you to choose the most appropriate attorney for each role.
What is a Business Lasting Power of Attorney?
A Business LPA is essentially a Property and Financial Affairs Lasting Power of Attorney that has been prepared specifically to deal with business interests.
Under a Property and Financial Affairs LPA, you appoint one or more trusted people, known as attorneys, who can make certain financial decisions on your behalf.
For a business owner, those decisions may potentially involve matters such as:
- dealing with business banking;
- authorising appropriate payments;
- dealing with suppliers and other commercial relationships;
- managing certain contracts;
- dealing with accountants, advisers and other professionals;
- handling insurance or financial administration; and
- helping to maintain continuity in the business.
Exactly what an attorney can do will depend upon the wording of the LPA, the structure of the business and any other agreements or constitutional documents governing the business.
Can You Have Separate Personal and Business LPAs?
Yes. A business owner can have one Property and Financial Affairs LPA covering personal financial matters and another dealing specifically with business affairs.
This can be particularly valuable because the person you trust to manage your personal finances may not necessarily be the best person to deal with your business.
For example, you might appoint a family member to deal with matters such as:
- household bills;
- personal savings;
- investments;
- personal property; and
- other private financial affairs.
However, when it comes to your business, you might prefer an attorney with commercial knowledge who understands your industry, business structure, employees, suppliers and professional relationships.
Keeping the two roles separate can provide greater clarity and reduce the risk of the wrong person being responsible for decisions outside their experience.
When two LPAs are used, they need to be carefully drafted so that the responsibilities of each attorney are clear and the documents do not unintentionally conflict.
Why Should Business Owners Consider a Business LPA?
A Business LPA is primarily about continuity and control.
If you become unable to manage your affairs because of illness, injury or loss of mental capacity, the people around you do not automatically acquire the legal authority to make financial decisions on your behalf.
Even a spouse, adult child, colleague or trusted business partner may not automatically be able to access accounts or deal with matters simply because they understand the business.
This can create significant problems for a business that depends heavily upon one individual.
A properly prepared Business LPA can help provide a clear legal framework for someone you have personally chosen to step in when required.
1. Maintaining Business Continuity
One of the main advantages of having a Business LPA is helping the business continue operating when you cannot deal with certain matters personally.
Depending on the circumstances and the authority contained within the LPA, your attorney may be able to assist with important financial and administrative decisions that would otherwise be delayed.
For a business relying heavily upon its owner, even a temporary inability to make decisions can create uncertainty.
Planning in advance provides greater clarity about who has authority to act.
2. Helping to Keep Important Payments Moving
Most businesses have regular financial commitments.
These can include:
- employee wages;
- supplier invoices;
- rent;
- insurance;
- tax liabilities;
- professional fees; and
- other operating costs.
If the person normally responsible for authorising those payments becomes unable to act, disruption can quickly follow.
Having suitable arrangements in place can help reduce the likelihood of important financial matters being left unattended.
3. Choosing Someone With the Right Commercial Experience
Your personal attorney and your business attorney do not necessarily need the same skills.
Managing someone’s household finances is very different from understanding contracts, cash flow, suppliers, staff and other commercial considerations.
A separate Business LPA gives you the opportunity to consider who is genuinely best placed to deal with your commercial interests.
That might be a trusted business associate, another suitable individual or, depending upon your circumstances, an appropriate professional attorney.
The most important consideration is selecting somebody you trust who has the ability to understand the responsibilities involved.
4. Keeping Personal and Business Finances Separate
Having separate LPAs can create a clearer division between your private financial affairs and your commercial interests.
Your personal attorney can concentrate on your home, personal assets and household finances, while your business attorney deals with the commercial matters covered by the Business LPA.
This distinction can be particularly useful where your business affairs are complex or where you would not want the same individual having responsibility for both areas.
5. Reducing Uncertainty During an Already Difficult Period
If a business owner unexpectedly loses mental capacity without appropriate arrangements in place, family members, employees and business partners can be left trying to determine what should happen next.
They may know what you would normally want them to do but still lack the legal authority required to make certain decisions.
Where there is no suitable LPA, it may become necessary to consider an application to the Court of Protection for somebody to be appointed to manage financial affairs.
Putting appropriate arrangements in place beforehand can therefore form an important part of wider personal and business contingency planning.
Is a Business LPA Suitable for Sole Traders?
For a sole trader, the individual and the business are not generally separate legal entities in the same way as a limited company.
This makes incapacity planning particularly important.
If much of the business depends upon you personally dealing with accounts, suppliers, payments and other financial matters, there may be no obvious person with automatic authority to take over those responsibilities.
A properly drafted Business LPA may therefore provide valuable protection for a sole trader.
What About Business Partnerships?
Partners should review their partnership agreement before putting a Business LPA in place.
The agreement may already contain provisions dealing with what happens if one partner becomes incapable of participating in the business.
Any Business LPA should therefore work alongside the partnership agreement rather than contradicting it.
If the existing arrangements are unclear, legal advice should be taken before preparing the LPA.
Do Company Directors Need a Business LPA?
Company directors need to approach Business LPAs particularly carefully.
A director should review the company’s articles of association, shareholder arrangements and any other relevant governance documents to establish what happens if a director becomes incapable of carrying out their role.
An LPA does not simply override a company’s constitutional arrangements, and some functions attached personally to the office of director may require separate consideration.
For sole directors and owner-managed businesses in particular, incapacity can create serious practical difficulties if there is nobody else authorised to keep appropriate parts of the business operating.
Taking legal advice allows the Business LPA to be considered alongside the company’s wider governance and succession arrangements.
When Can a Business Attorney Act?
A Property and Financial Affairs LPA must be registered with the Office of the Public Guardian before it can be used.
Depending upon how the LPA has been prepared, an attorney may sometimes be permitted to assist while the donor still has mental capacity, provided the donor agrees.
Alternatively, the LPA can contain appropriate restrictions regarding when the attorney is permitted to act.
This makes careful drafting particularly important.
Your solicitor can discuss how and when you want your business attorney to have authority and ensure that the document reflects your intentions.
Who Should You Appoint as Your Business Attorney?
Choosing your attorney is one of the most important decisions involved in preparing a Business LPA.
You should consider somebody who is:
- trustworthy;
- financially responsible;
- capable of understanding the business;
- able to deal with important decisions calmly;
- willing to take on the responsibility; and
- unlikely to face problematic conflicts of interest.
The right choice will depend upon the nature and structure of your business.
For some owners, the most appropriate person may be a family member. For others, a business associate or professional may be more appropriate.
Does a Business LPA Replace Business Continuity or Succession Planning?
No.
A Business LPA should normally be viewed as one part of wider business continuity and succession planning.
Depending upon your business structure, you may also need to consider:
- partnership agreements;
- shareholders’ agreements;
- company articles;
- banking arrangements;
- key person planning;
- succession arrangements; and
- your Will and wider estate planning.
All of these arrangements should work together.
What Happens if You Already Have a Personal Financial LPA?
Having an existing Property and Financial Affairs LPA does not necessarily mean that your business affairs have been dealt with in the most appropriate way.
It is worth reviewing:
- whether the existing LPA includes business matters;
- whether your existing attorneys have suitable commercial experience;
- whether you want the same people managing personal and business finances;
- whether there could be conflicts between the two roles; and
- whether your existing business documents place restrictions on what an attorney could do.
For some business owners, one appropriately drafted LPA may be sufficient. For others, having separate personal and business LPAs provides a much clearer arrangement.
Frequently Asked Questions About Business LPAs
What is a Business LPA?
A Business LPA is a Property and Financial Affairs Lasting Power of Attorney prepared to deal specifically with a person’s business interests and financial responsibilities.
Can I have a personal LPA and a Business LPA?
Yes. You can have separate Property and Financial Affairs LPAs dealing with your personal financial matters and your business affairs. Careful drafting is important so that the powers granted under each document are clear.
Does my spouse automatically take over my business if I lose capacity?
Not necessarily. Being someone’s spouse or family member does not automatically provide legal authority to manage all of that person’s financial or business affairs.
Can my business partner be my attorney?
Potentially, yes, provided they are eligible and suitable. However, any partnership agreement, company documents and potential conflicts of interest should be considered before making the appointment.
Do sole traders need a Business LPA?
A Business LPA can be particularly useful for sole traders because there may otherwise be nobody with authority to deal with important financial matters if the owner becomes unable to act.
Does a Business LPA cover company director duties?
Not automatically. Company directors should consider the company’s articles of association and other governance arrangements. Legal advice is important to establish how an LPA would interact with the individual’s role as a director.
When can my business attorney start acting?
A Property and Financial Affairs LPA must first be registered with the Office of the Public Guardian. Whether the attorney can act while you still have mental capacity will depend upon how the LPA has been completed and any instructions or restrictions included within it.
Protecting Your Business Through Forward Planning
Most business owners plan carefully for financial risk, growth and succession. Planning for a situation in which you temporarily or permanently cannot make decisions deserves the same attention.
A Business Lasting Power of Attorney can help ensure that trusted people have appropriate authority to deal with specified commercial matters while keeping those responsibilities separate from your personal financial affairs.
However, the correct arrangement will depend upon whether you operate as a sole trader, partnership, shareholder or company director and on the terms of your existing business documents.
If you own or manage a business and would like to understand whether a separate Business LPA is appropriate, Arlingsworth Solicitors can advise you on putting suitable arrangements in place alongside your personal Lasting Power of Attorney and wider business planning.
With offices in Brighton and London, our team can provide clear advice tailored to your personal and commercial circumstances.
Speak to Arlingsworth Solicitors to discuss your Lasting Power of Attorney and business continuity arrangements.
