Powers of Attorney for Business Owners
There are General Powers of Attorney and Lasting Powers of Attorney (LPAs). The latter have a specific legal meaning and purpose.
A General Power of Attorney is generally used for a specific (usually short term) task, or when you may be abroad for a short period, for example.
An LPA allows you to appoint people whom you trust to make decisions for you if you have lost your mental capacity, through illness or an accident. Without this in place families can face enormous difficulties in handling your affairs at a difficult time. An LPA can be used to delegate decisions relating to personal welfare, including health care and medical treatment decisions, as well as decisions about financial matters.
You can have LPAs for both your circumstances and to handle your business affairs.
Many business owners, partners and directors may not consider what would happen to their business should they be unable to make decisions for their business in the case of their mental incapacity.
For business owners specifically, whether they are partners, sole traders or company directors, unexpected incapacity (even if only temporary) can have a serious impact on the business, such as day to day control and finances (perhaps third parties could not be paid, stock could not be purchased and no one would be authorised to control the business account). You might think you could rely on family or employees to deal with the running of the business, but they may not have the authority or knowledge to be able to do this.
If you were to become incapacitated then, without an LPA, an application would need to be made to the Court of Protection in order for someone to be appointed as your deputy. The person appointed may not have been the person you would have chosen and this process is both costly and lengthy (far greater than the cost of putting an LPA in place). In the meantime, the business is likely to suffer.
For these very reasons, we would recommend setting up a Business LPA.
How are they different?
A Business LPA is different to a normal LPA for a couple of reasons, more so than just the basic preparation and drafting of the documents. For example, the nature of the business, the articles of association and any partnership or shareholder agreements need to be studied first to ensure that they allow the creation of an LPA, and if not, they will need amending.
Choosing your Attorneys
The appointment of attorneys need to be carefully considered, based on not only trust, but if they are capable of doing the job in a way that the donor would do. For example, the donor will need to consider if their chosen person is familiar with the business, or at least the market of the business along with the “people” such as staff and suppliers. For your Business LPA It is critical to choose someone based not only on trust, but also who is familiar with the business to ensure they act in your and the business best interests, and share the same business ideas and vision as you.
In many circumstances, it may be appropriate to appoint different attorneys to deal with specific tasks in the business, or separate attorneys to deal with the running of the business and your personal matters. It is possible even put separate LPAs in place.
Before Attorneys accept their roles they must understand the responsibilities that they will have as both Attorney and effectively a Director/Owner. This means complying with contractual obligations of the business, and any applicable regulations. Policies which you have in place must also be followed.
For these reasons when an Attorney is appointed, they must take out their own Personal Liability Insurance to ensure that they are protected personally whilst acting on your behalf.