Many people understand that they need a Lasting Power of Attorney (LPA) for their personal affairs but not as many people understand that they may need one for their business affairs. It is wise to understand what you may need your power of attorney for business to do.
It is a common misconception that a spouse or family member will automatically be able to make decisions for you if you lose capacity – they won’t. So there is no guarantee that your business will continue to operate if you have not made appropriate arrangements.
As a business owner, it is important to understand what might happen if you can’t make decisions about your business. This may be only temporary, for example being unavailable abroad or following an accident, or it could be permanent, for example through developing dementia. You need to make sure you think about it beforehand because it is too late when you have lost capacity.
What do you need your Power of Attorney for business to do?
In these circumstances, the following points need to be considered. For example, who can:
- authorise the payment of bills
- sign cheques
- pay salaries
- sign a contract in your absence
- make a loan payment
What might the consequences be?
If you don’t have a POA in place, these might be the consequences:
- If the head of the company is incapacitated and there is no POA, then you would have to apply to the Court of Protection. That could take several months, in which time the company has no decision maker
- Insurances may be invalidated
- bank accounts may be frozen or have access restricted
- with a regulated firm, you may not be able to run it without the relevant qualification
- Organisations may no longer want to trade with you if you have lost your leader
- Your business is exposed if there is no crisis management or business continuity policy
What type of Power of Attorney is right for your business?
What type of POA will depend on whether it is a temporary or permanent requirement:
Ordinary Power of Attorney
An Ordinary Power of Attorney (OPA) covers decisions about your financial affairs and is valid while you have mental capacity. It is suitable if you need cover for a temporary period (eg hospital stay or holiday) or if you find it hard to get out, or you want someone to act for you.
Lasting Power of Attorney
A Lasting Power of Attorney (LPA) covers decisions about your financial affairs or your health and wellbeing. It comes into effect if you lose mental capacity or if you no longer want to make decisions for yourself. The LPA took over from the Enduring Power of attorney in 2007.
What kind of business do you have?
- self-employed sole trader
- partnership
- limited company
Self-employed sole trader
If you are self-employed, you are trading as a sole trader so there is no separate legal entity as there would be if there was a limited company, for example. So, you could appoint an Attorney under an LPA. This could be either under a personal affairs LPA or a separate business one depending on the extent of your business.
Partnerships
In a partnership you will invariably have other partners. It may be that the partnership agreement already accounts for what happens if one of the partners is incapacitated. If the partnership agreement deals with business continuity in the absence of an incapacitated partner, then there is no need for a POA.
If you check the partnership agreement and there is no provision, then you could use either an OPA or an LPA but make sure it doesn’t conflict with the partnership agreement.
Limited company
If you are the director of a limited company, you will need to check the Articles of Association (Arts) of the company to see what provisions have been made. It may be that the Arts will provide for the termination of the director when they become incapacitated. This is to protect the company. If it is not included in the Arts you may want to get it re-drafted.
If you are a sole director / shareholder, this could cause problems because there would be no one left running the company. In such circumstances it would be wise to consider appointing a business LPA.
Do you need separate POA for personal and business?
You can account for both your personal affairs and your business in one LPA for financial affairs. If you have a small business or maybe a rental property, it may be easier to do all of it in one LPA. You do need to check with your Attorney whether they are ok with dealing with your business affairs.
You can have more than one LPA so consider whether to have separate LPAs for business and personal financial affairs. If you do have two separate LPAs, then make sure you leave specific instructions limiting the power of each Attorney to their respective area. You need to outline what the respective responsibilities and decisions should be.
What happens if you don’t make a POA?
It is just the same as with a personal POA: if you lose capacity and haven’t appointed an Attorney, someone will need to go to the Court of Protection to be appointed as a court deputy. You do not, of course, get a choice who is appointed and it may take months to get a deputyship in place.
In any case, this should be part of your contingency planning for information security and crisis management. The best advice is to be prepared.
Do I pay my Attorney?
You can make provision in the LPA to make sure your Attorney gets paid. This is important because, ordinarily, an Attorney does not get paid other than expenses. If you want your business run properly in your absence, make sure the Attorney is properly recompensed.
