What are Lasting Powers of Attorney (‘LPAs’)?
Lasting Powers of Attorney are important documents, which allow you to appoint someone you trust to act as your attorney if you become mentally incapable of making decisions for yourself. There are different types of Lasting Powers of Attorney – one for health and welfare, one for personal finance and property and one for financial and property decisions relating to a business. This article is going to focus on the importance of business LPAs.
Case Study
Oliver runs his own antique business as a sole trader. The work carried out by the business includes buying, selling and valuing antiques. Oliver rents a small shop and employs four staff members.
In his spare time Oliver enjoys mountain biking. Sadly, Oliver was involved in a biking accident and suffered from a head injury which incapacitated him.
Oliver’s wife believes that she automatically has the right to step into Oliver’s shoes and continue to run the antique business but unfortunately, she is incorrect.
This means that Oliver’s business is unable to pay the rent due on the shop, pay the salaries of the employees and the business misses out on a new lucrative contract as no one has the authority to sign on his behalf.
Oliver could have consulted a solicitor, while he still had capacity, and they would have been able to assist him in setting up a Business LPA. Oliver would have been able to choose someone who he trusts to take over decision making for the business if he ever became unable to do so.
Oliver could have chosen his wife or, if he wished to keep family life separate from business, he could choose a friend or business colleague. In this instance, Oliver’s attorney would have authority to make payments and enter into new contracts. The continuity of Oliver’s business would not have been interrupted.
Partnerships
If Oliver ran his business as a partnership, the first step would be to check the partnership agreement. The partnership agreement may already contain provisions as to what should happen in these circumstances.
Oliver could have sought the advice of a solicitor and asked them to check the partnership agreement. If a Business LPA was required, then the solicitor would word the LPA carefully to ensure that it did not conflict with the terms of the partnership agreement.
Limited Company
Before his accident Oliver had recently incorporated his business and it was operating as a limited company. As Oliver was the sole director, the articles of association did not deal with the termination of a director’s appointment.
Similarly to when Oliver was running his business as a sole trader, no one has the authority to continue making business decisions and they cannot rely on the articles of association as they do not contain provisions to terminate one director’s appointment and appoint someone else.
This problem could have been avoided if Oliver had prepared a Business LPA.
When Oliver incorporated his company, he appointed a long standing employee as a director. If this was the case, the first step would be to check the articles of association, which may contain provisions as to what happens if a director loses capacity.
What happens next for Oliver & his business?
If the business is to continue operating it may be necessary to make an application to the Court of Protection for the appointment of a deputy to act on Oliver’s behalf. The process can be expensive and there is no guarantee that the Court will appoint the same person Oliver would have chosen. The appointment of a deputy is a long process, which can take up to 6 months, during which there is potential for the business to become more vulnerable and at risk.
If you would like more information or to arrange an appointment to speak to one of our specialist private client solicitors please contact us on 01244 312306 or email law@oliverandco.co.uk. Our fees for assisting you with your Business LPAs start at £295 plus VAT.
