Who looks after your business if you cannot?
This is a question that not many business owners think about, either when setting up or during their time running the business. But it is important for every business owner to think about it and then take positive steps to put plans into place to ensure the continuity of the business.
A lasting power of attorney (LPA) is a legal document which gives another person the authority to make decisions on your behalf. It may be in the best interests of a business owner to protect their business interests this way.
A business LPA, therefore, enables you to appoint individuals who you trust and who understand your business to take over the day to day management and decision making of the business, when you are not able to do so. That person can then ensure that your business continues to operate.
Why would you need a business LPA?
There are many reasons why you may have an unplanned absence from the business. You may be delayed abroad due to events beyond your control, for example, terrorism or natural disaster. You may have had an accident meaning you can’t travel back home, or not be able to make decisions. Finally, you may be diagnosed with dementia or a similar illness affecting your capacity to make decisions.
Much will depend upon the structure of your business as to the best advice for you and your business.
Where you are a director of a limited liability business, often the articles of association will provide that your appointment as director is terminated. The company’s articles of association should be therefore be checked in this regard.
Where you are a partner, the partnership agreement should be checked as it will sometimes contain provisions for when a partner becomes incapacitated. If there are no such provisions, or if you are a sole trader, you should consider putting a business Lasting Power of Attorney (LPA) in place.
Consequences of not having a business LPA in place?
In the event you do not have a business LPA and you lose mental capacity, a court process is required to appoint a ‘deputy’ to make decisions regarding your assets and financial affairs. This is a costly and lengthy process, sometimes taking between 6-12 months.
During this time, the business may suffer if someone isn’t around to manage finances and day-to-day operations. Your bank accounts may be frozen meaning that suppliers, tax and employee wages won’t be paid, payments into the business won’t be collected, and no one will be able to make decisions for the business. The risk is that by the time the court process is completed, there could be severe consequences and a financial burden for your business.
For further advice and information on how to make a business LPA, please contact Christopher Seddon, who is the head of our Private Client Team, for guidance and an initial free telephone consultation.
Telephone: 01483 796008