Running a business involves planning for the future and setting goals. Unfortunately illness or loss of mental capacity is not something we can predict. A Commercial Lasting Power of Attorney (LPA) can help to ensure your business continues to run smoothly should you lose mental capacity or be unable to run your business due to ill-health.
What is a Commercial Lasting Power of Attorney?
A Lasting Power of Attorney is a legal document which allows you to appoint someone you trust to act on your behalf if you lose mental capacity and are unable to make decisions. You may have heard of the Property and Financial Affairs Lasting Power of Attorney which deals with your personal financial affairs. A similar document can be prepared for your business decisions.
When it comes to who you appoint as your attorney (the person you trust to act on your behalf) it may not be appropriate to appoint the same person for your personal financial affairs and your business decisions as there could be a conflict of interest. You may also prefer to appoint someone who understands the way your business is managed and has a similar commercial attitude.
Why should you have a Commercial Lasting Power of Attorney?
If you lose mental capacity but you have not appointed an attorney to make business decisions on your behalf, an application will need to be made to the Court of Protection for an individual to be appointed to act on your behalf. This may not be the person you intended to look after your business affairs.
This process can take around four months and during that time it may not be possible to run the business effectively as suppliers and employees may not get paid and proposed agreements may not be completed. The likelihood is that this delay would cause most businesses to come into difficulty and they could be wound up.
Is my business suitable for a Commercial LPA?
Whether you are running your business as a sole trader, partnership or limited company, you will need to consider the potential effects of you losing mental capacity, and whether a Commercial LPA could protect your business.
If you are a sole trader there may be no other person that could carry on your business in the event you lose mental capacity. A Commercial LPA could ensure that someone you trust can continue to run your business or wind it up without the need to apply to the Court of Protection.
If your business is a partnership then much will depend upon whether or not you have a Partnership Agreement in place. If a Partnership Agreement is in place, this is likely to dictate what happens in the event you lose capacity. However, in the absence of a Partnership Agreement or a Commercial LPA, an application to the Court of Protection may be necessary in order to allow vital business decisions to be made without you.
If you are a director or shareholder in a limited company, the company’s governing documents (the Articles of Association and any Shareholders Agreement) may contain provisions which require you to cease to be a director, or require you to offer your shares for sale back to your fellow shareholders in the event of your loss of capacity, in order to give your fellow shareholders control over the company. You should review the company’s governing documents for these provisions prior to entering into a Commercial LPA.
Unfortunately, if you are a director, it is not usually possible (unless the governing documents allow this) for you to delegate your functions as a director through an LPA, as the position of a director is a personal appointment.
However, if you are a shareholder with voting rights, your attorney, under the Commercial LPA, may be able to exercise those rights on your behalf, subject to the governing documents.
It is always worth reviewing your governing documents to ensure that you can protect the future of your business in the event that you are unable to make decisions.
Having a Commercial LPA in place can help not only put your mind at ease but ensure that your business continues to run smoothly and profitably should you unexpectedly fall ill or lose mental capacity.