What is a Business Lasting Power of Attorney?
A Business Lasting Power of Attorney Guide
If a Business Lasting Power of Attorney isn’t part of your continuity planning you could be making a big mistake.
Owning a business is not easy. Success or failure often balances on a knife-edge. You put a lot of hard effort into building your business so it’s worth protecting it.
If you become seriously ill your business could collapse in a very short period. The survival time for a business where the owner becomes incapacitated could be just 28 days, or even less.
A business may rapidly stop trading if there’s no one with authority to deal with the banking, signing-off contracts, paying taxes or doing the hundred and one things a business owner has to do.
Remember, it’s not just your business that would suffer. Family, employees, business partners, suppliers and many more people could be badly affected. The reputation of your business could quickly suffer and the business might become unsaleable.
Making a Business Lasting Power of Attorney (LPA) enables your business to keep going even if you’re out of action.
What is a business lasting power of attorney?
If you’ve heard of a power of attorney you’ll probably know that it’s a legal document that gives authority to another person or several people to act on your behalf if you’re unable to do so. If you make a business lasting power of attorney, your attorneys have authority to deal with running your business on your behalf.
How does a business lasting power of attorney differ from a personal LPA ?
A personal lasting power of attorney gives general authority to deal with a person’s personal affairs.
A business power of attorney includes powers that are very specific to your particular business. The authority given to the attorneys can be tailored to suit your individual business.
Choose attorneys for your business affairs carefully
The attorneys should, if possible, have skills and experience that will help them in running your business because that’s what they are going to have to do during the period while you are incapacitated.
If you are permanently mentally incapacitated your attorneys will also have the job of trying to sell your business or transfer it to another member of your family. They will need to make judgements about the timing of a disposal.
Think about your responsibilities in the business
It will also be important to consider your role in the business. If your business is a limited company and you are a director you have responsibilities to the company.
Directors have a duty to promote the success of the company and act fairly towards all the members of the company. Directors must use reasonable care and skill when carrying out their duties. Your attorneys must understand exactly what duties they might have to take on.
If you are a shareholder but not a director your attorney may need to deal with other shareholders who have more control over the company.
Even in the case of a sole trader, there are likely to be considerations such as the needs and interests of employees and protecting the reputation of the business. Your attorneys’ actions could affect the goodwill in the business and that could have an impact on the value of it.
It’s important to check whether you are allowed to delegate your responsibilities as a business owner. If you own a business that’s regulated by a regulatory body or if you are bound by particular statutory obligations you might be restricted in the type of powers you can delegate to an attorney.
Business lasting powers of attorney – getting them right
The main thing to appreciate is that it is unlikely to be sufficient just to fill in basic information on a Lasting Power of Attorney document and hope for the best. Here are some suggestions:
- Giving general authority to your attorneys is probably too vague. Set out your intentions clearly so your attorneys know which powers they will have and how you expect them to be used.
- Things such as stock and land and vehicles will not necessarily be owned outright by you but your attorneys might need to make use of those assets or dispose of them if the business is sold.
- If you only want your attorneys to be able to act in certain situations include restrictions in the document to make clear the limits on the attorneys’ powers.
- Make sure your attorneys can look at business documents such as partnership deeds, leases and guarantees.
Don’t assume your family has the right to manage your business for you
Your family do not automatically have the right to make decisions about your business – even if they are involved in it as co-owners or employees. If you should suffer serious illness or mental incapacity a business lasting power of attorney could make all the difference between the continuing success or sudden failure of your business.
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