Lasting Powers of Attorney: Should You Put One in Place for your Business?

Lasting Powers of Attorney (LPAs) are typically considered and arranged in older age; often used by relatives, to cover a possibility of an aged relativity losing capacity to manage their personal financial affairs.

However, the current Covid-19 pandemic has underlined the potential importance of LPAs for business owners in these unprecedented times. If one partner of a partnership or a director and/or shareholder of a company is unable to continue their involvement if they are ill what would happen? How will the business continue to make decisions and sign documents if people are absent for a prolonged period?

Sole Trader

If you are a sole trader, you trade in your own name; all business accounts, investments, orders, etc are paid to you. If you are incapacitated and do not have an LPA for Property and Financial Affairs (“Finance LPA”) or Enduring Power of Attorney (the precursor to Finance LPA) in place, no one can continue the business or access the business finance and the business would cease trading. In this situation, the only option available to continue or simply to access the business finances would be to apply to the Court of Protection for a Deputyship Order, which could take up to 9 months to be issued. In practice, that would create massive problems for any business and probably mean that it stood little chance to survive.

If a Finance LPA was in place; this could be avoided. The attorney appointed could continue the business (if appropriate), access finances and manage trading; the transition might be smooth and allow the business to carry on for your return.

Partnership

If your Partnership has a Partnership Agreement in place, it will likely make provision in the event of the incapacity of a partner. However, if the Partnership is a ‘partnership-at-will’ and there is no formal agreement, you might think that the Partnership will terminate on the incapacity of a partner, but this is not the case; the partner will retain rights and obligations. How, therefore, will the Partnership continue with an incapacitated partner?

If a Finance LPA is in place, the Partner’s attorney can step can act in their place and provide continuity. There is generally no legal restriction on a Partner appointing an attorney to discharge their functions.

If the incapacitated Partner does not have a Finance LPA (or Enduring Power of Attorney), the Court of Protection can make any necessary order relating to the business on behalf of a mentally incapacitated person, which can include the dissolution of the Partnership, though again there is considerable delay for such an order to be made.

It is therefore imperative to have the document in place to avoid this situation, especially where there is no Partnership Agreement in place.

Company

What if a director of a company is ill and unavailable? The position of a director who loses capacity will usually be governed by the Articles of Association of the company. Most Articles contain some provisions under which a person will cease to be a director as a result of their incapacity. In some cases, this is automatic; in other cases, it may only happen after a court has made a determination or a medical practitioner has certified that the director has lost capacity.

Depending on the version of Articles, a director’s mental incapacity may result in a company being unable to conduct business, because the director cannot attend meetings and cannot easily be removed, so meetings are inquorate; it may then fall to the shareholders to make decisions. An attorney can vote for the director in their capacity as shareholder. If the Articles do not enable the incapacitated director to be removed, it may be possible to change the Articles to allow for the removal of the director.

Although a Finance LPA will not enable an attorney to act in the role of director; it will enable the attorney to act in the role of shareholder, which may, depending on the articles, be imperative to the running of the company.

Business & Personal Powers of Attorney

Often the person who may be best placed to continue your business responsibilities may not be the person you would like to oversee your personal finances and property. It is therefore possible to have two documents in place; one limited for use in relation to your business affairs, and the other limited to the use in relation to your personal affairs.

If a Finance LPA is something which will benefit you and provide you with security, please contact us on 029 20 34 55 11 or coronavirus@berrysmith.com for further details