Business Lasting Powers of Attorney (BPLA) help to safeguard against potential issues in the future if a director, partner, director or shareholder becomes unable to manage their responsibilities due to illness or an accident.
The ramifications of a key member of your team suddenly becoming incapacitated or losing their ability to make critical decisions could be devastating to a business, leading to problems with authorising payments, accessing accounts, dealing with contracts, paying staff, managing assets, and keeping fundamental day-to-day business operations running.
A BLPA allows sole traders, partnerships, directors and shareholders to protect their business interests and ensure that their company is able to continue to operate if a vital member of the team loses physical or mental capacity to continue.
Lasting Powers of Attorney works by delegating power to a nominated individual (known as an attorney) to handle an individual’s affairs in the event that they are unable to do so, due to injury, illness or mental incapacity. For personal LPAs, this may involve finances, dealing with bills and property, or following instructions on the donor’s wishes for healthcare and living arrangements, and these responsibilities are usually trusted to a family member or close friend. And while a personal Property and Financial Affairs LPA could include business decisions, this means you would need to ensure that the attorney you appoint for your personal finances also has the ability to manage your business. This could potentially become an enormous responsibility for one individual who may be better suited to focus on your personal affairs, and therefore it is often more sensible to draw up a separate Business LPA and appoint a trusted attorney from your industry who will be more suited to the specific requirements of your business.
It’s important for any LPA to appoint the right person for the job, and when it comes to a BPLA, this means finding someone who has the requisite skills and experience, who is able to handle the appropriate operations they will be taking over. This could be a business partner or someone else within the company, or a separate individual who you trust to take over your role and act in the best interests of the business. Choosing a fellow director or partner is an obvious choice, but there can be potential conflicts of interests that complicate matters, and in many cases it’s better to appoint an independent attorney, for example: a solicitor or accountant who is already familiar with the general running of the business.
A BPLA allows you to leave instructions for how you would like the attorney to manage the role and make decisions on your behalf. It can also be useful to set out a separate memorandum with your general views and wishes for the business as further guidance. The needs for a BLPA will vary from business to business and person to person, but here is a general rundown of what you might want to consider including, depending on your position:
If you are a sole trader, you’re likely to be responsible for most company responsibilities, so it’s even more important to have the contingency of a BLPA in the event that you lose the capacity to run your business. Ideally, you should appoint someone who has the relevant knowledge of your business operations to allow them to take over. For many sole traders this may be a family member, peer or business contact. However, in some instances, if replacing your role is impossible, the best solution would be to close down the company and release any assets.
Sometimes partnership agreements already include similar provision as a BLPA, so make sure to check if your agreement covers everything you need it to. And if you do need additional support via a BLPA, make sure the wording does not conflict with your partnership agreement.
Drawing up a BPLA for directors can be a complicated issue as it will depend on a company’s articles of association. As with partnerships, these articles may already include provision for a director losing capacity and may not allow for delegation of responsibilities via an attorney. Check if a BLPA is permitted and consider what duties an attorney would need to take over—at the very least, it can be helpful to ensure that there are two directors for business continuity. If a director is also a shareholder, it might be easier to appoint an attorney to take over their shareholder responsibility to ensure their involvement in important decisions.
A BLPA can be vital to protect the duties of sole or majority shareholders to ensure resolutions can be passed if one member is suddenly unable to participate. However, as with partnerships, be sure to check that the details of any BLPA do not conflict with existing provisions in shareholder agreements.
If you do not have a BPLA in place and a vital member of your team is unable to continue their duties, business partners, staff and family members may be left in difficulty and will need to apply to the Court of Protection to appoint a deputy to act on the individual’s behalf. This can be costly and time consuming and may leave the business at risk for several months. Without a BLPA, business bank accounts could be frozen, contracts could fall through, staff could go unpaid, and the company could even have claims made against it for failing to uphold its duties.
At worst, a Business LPA is a savvy business expense. At best, it could save your business from going under and protect your staff, family and financial interests should the worst happen.
For more advice, get in touch with our team at Frances Lindsay & Co and make sure you protect every aspect of your future, both personal and professional.