Lasting Power Of Attorney For Business Owners

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Lasting Power Of Attorney For Business Owners

Lasting Power Of Attorney For Business Owners

Ian Winterbotham talks us through a Lasting Power of Attorney for business owners.

What is a Lasting Power of Attorney (LPA) for a business owner?

It is a legal document that allows the owner to designate someone (an attorney), to make decisions and act on their behalf regarding business matters. This can be crucial in situations where the business owner is unable to manage their affairs due to illness, absence or incapacity.

Specifically, it’s a standard Property and Finance LPA, but it has additional wording. It’s focused on people who have a controlling share in a business and want to control business decision making.

It may be possible to have just one LPA, appointing attorneys to manage your personal assets and business assets. But it may not always be appropriate for the same person to make both personal and business decisions, if there are potential conflicts of interest.

Fortunately, it’s possible to make more than one LPA for Property and Finance. You could consider making one for your personal affairs and a separate one for your business affairs. 

The distinction is that a Property and Finance LPA covers personal financial matters, while the business LPA focuses on business related decisions.

Can a LPA be granted to a company?

Yes, a LPA can be granted to a company. It’s often referred to as a corporate LPA. In this arrangement, the business owner authorises a company rather than an individual to act on their behalf in specific matters.

Why would I need a LPA as a business owner? What happens if I don’t have one?

Having a LPA as a business owner is crucial for several reasons. 

First, it will ensure uninterrupted business operations. A LPA ensures that your business can continue to operate smoothly, even if you’re unable to manage it due to illness, absence or incapacity. It should prevent disruptions that could affect your business’s performance and reputation.

With a LPA, your designated attorney can make important decisions promptly, including signing contracts, managing finances and handling legal matters. This is essential for maintaining business momentum and seizing opportunities.

The appointed attorney has a fiduciary duty to act in both your best interests and those of your business. So they are legally obligated to manage your business ethically and prudently. You can tailor the LPA to specify the scope of the powers granted. You can set limitations and outline your preferences for decision making.

This should all ensure that your business is managed according to your wishes. Knowing that a trusted person or entity is authorised to manage your business in your absence provides you with peace of mind, allowing you to focus on recovery or other priorities.

If you don’t have a LPA, the circumstances will depend on the business, but you could have operational disruptions. Delayed decisions could be disastrous. Legal complications may need to be overcome. Without choosing the right attorney, there’s the risk of mismanagement.  All this will have a financial impact.

What decisions can the attorney make in respect of your financial affairs? What decisions can they not make?

The attorney can make decisions on banking transactions, paying bills, signing contracts, leases and other agreements necessary for the operation of the business.

They can also make investment decisions, even buying and selling stocks, bonds and other securities. It covers tax matters: filing tax returns, handling tax payments, dealing with tax authorities, buying, selling, leasing or managing real estate and other property owned by the business. 

Debt management is also crucial, whether you’re borrowing money, repaying loans or managing other forms of debt. The attorney will also manage general financial planning, developing and implementing financial strategies to ensure the business’s long term stability and growth.

The attorney cannot make personal decisions on behalf of the business owner, such as those related to his health care or personal life.

Powers that are explicitly excluded in the LPA document include any illegal activities, or decisions that would violate the law. Attorneys also need to consider conflict of interest.

They must avoid benefiting themselves at the expense of the business owner. Certain decisions could be chosen to be irrevocable or require the personal consent of the business owner. Things like making or revoking a will can’t be made by the attorney.

When can the attorney for the business owner act?

Generally, there are two options when you complete the application. The attorney can either act immediately, as soon as the LPA is registered with the Office of the Public Guardian, or only when the business owner loses capacity. 

A business owner would not be encouraged to choose the latter option, because unfortunately we can all get illnesses that might mean we go in and out of capacity.

The attorney would have to get a doctor’s certificate every time they wanted to use it, particularly for older people. If you develop a condition like dementia, that’s often not satisfactory.

There are also other situations – such as if the business owner is travelling or otherwise unavailable. The attorney can handle business matters to ensure operations continue smoothly.

You can specify when the attorney can act in the document. You can even put in an expiry time, so they can act for a certain period if that seems relevant to you.

How much does a LPA for business owners cost? 

What we charge for a standard Property and Finance LPA is £350 plus VAT, plus the registration fee of £82 which is payable to the Office of the Public Guardian.

That would be for a standard LPA, where you give somebody authority for your personal and business affairs. It would not include any custom conditions, as I have alluded to already. 

But it’s worth noting that you could have two documents – one to deal with your personal financial matters and your family, and another for business related decisions which include somebody else. That would mean two documents, and we would charge £650 plus VAT for the two documents combined [all information given is correct at the time of recording in September 2024].

What are the benefits of a LPA for business owners? 

It’s about business continuity. An LPA ensures that your business can continue to operate smoothly if you become incapacitated or otherwise unable to manage it. This obviously prevents disruptions and maintains stability. 

The appointed attorney can make important decisions promptly, ensuring that critical business operations and financial matters are handled without delay. You can tailor the LPA to specify the scope of powers granted, set limitations and outline your preferences for decision making, so that your business is managed according to your wishes. 

The attorney has a fiduciary duty to act in your best interests and those of your business. You should feel that it ensures ethical and prudent management. Knowing that a trusted person or entity is authorised in your absence should provide peace of mind, allowing you to focus on recovering from an illness or other priorities.

It provides a clear legal framework for managing your business affairs, reducing the risk of disputes and ensuring that financial decisions are made in a structured and lawful manner.

What are the risks?

A lot depends on who you choose as your attorney, but there could be the potential for misuse if the appointed attorney is not trustworthy or lacks the necessary expertise. There is a risk of mismanagement or misuse of the authority, which could harm your business.

Granting a LPA means you’re giving someone else significant control over your business affairs. If not carefully managed, this could lead to decisions that you might not agree with – although if you can express yourself in any way, they are meant to follow your wishes. 

Complexity and costs are also a risk. Setting up an LPA can be complicated if you want to add lots of conditions, and that will involve legal fees. Additionally, if disputes arise, resolving them could be time consuming and costly. While you can revoke a LPA, doing so could possibly be complicated if the attorney has already taken significant actions on your behalf.

So a LPA is only as effective as the powers granted within it. If the document does not give comprehensive powers to the attorney, the attorneys may be limited in their ability to manage certain aspects of your business. However, the default position is that the powers are comprehensive. 

Again, you do have to depend on your attorney’s competence and ability and motivation. The success of a LPA will heavily depend on that. If they lack the necessary skills or knowledge, it could even have a negative impact on your business.

So there is a lot to consider before putting a business LPA into place.

Is there anything else we need to know about creating a LPA for Business Owners?

If you’re considering making two LPAs – one for your personal affairs and one for your business decisions – both should contain specific instructions. The one for personal affairs should contain instructions limiting the scope of the attorney’s powers. 

For example, a personal LPA should specify that your attorney will have general power in relation to your personal affairs, except for the relevant business assets – in respect of which, you have executed a separate business LPA.

Your business LPA should therefore contain specific instructions in this respect, too. It’s not too difficult to do. We can find the wording to put into the two documents. Your attorneys will then be clear about their powers and will not encroach on each other’s responsibilities and decisions. 

Be aware that if you’re unable to make business decisions in the future and have not made a business LPA, it may become necessary to apply to the Court of Protection to appoint a deputy to act on your behalf.

This process can be expensive, and there’s no guarantee that the Court of Protection will select someone you would have chosen. It could take even more than six months before a deputy is appointed, during which time your business could be very vulnerable.

To avoid disruption, it should be part of any business owner’s continuity plan and crisis management strategy to make a business LPA. Having said all that, if you’ve got a Property and Finance LPA, that’s a good step towards avoiding some of the risks that we’ve described.