What is a Business Power of Attorney?
Following on from our recent article about business succession planning we have decided to go into a little more detail about the importance of planning not only for death, but for the events that could happen during your life. Events such as incapacity or ill health for example. These events are often unforeseen, unwelcome and unannounced and as such it is wise to consider safeguards such as a commercial LPA or Business Power of Attorney as it is also known.
An LPA is a Lasting Power of Attorney. It is a document that allows you to appoint an attorney who will be able to make decisions and act for you if you were unable to make those decisions for yourself. Ordinarily there are two types of LPA’s, a health and welfare document and a property and financial affairs document. You can also have a document giving power to attorneys to make decisions relating to the running of your business. You may choose to put this in place for a number of reasons:
- ill health
- Prolonged periods away from work/the office
According to the Mental Health Discrimination Act 2013, a director or partner of a company who loses their mental capacity cannot automatically be removed as a director of ‘said’ company. It depends on what clauses are contained within their articles of association.
If a company has multiple directors and one loses capacity (and thus the ability to make decisions relating to the business) then it is understandable that the other directors or partners may wish to remove them from the business.
It may be the case though that there is only one director, or a business is running as a sole proprietorship. In this case if the director loses the ability to make decisions then the business can suffer as a result. Having a commercial LPA in place can allow you to appoint powers for someone to make decisions under these circumstances which would mean the business could be wound up, sold, or even to secure the longevity of the business.
To be able to implement this the company articles and any partnership agreements must reflect this as an option. From a marketing point of view, anyone that you appoint as an attorney for the business must understand the direction the director wishes the company to take. For example it could be considered a pointless and expensive exercise appointing a member of the team who deals only with the administration as an attorney capable of making decisions to decide on the future direction of the company.
Regular consultations with proposed attorneys should be considered so that they fully understand a directors vision for the organisation. They should understand the company’s business plan, marketing strategy and mission statement.
According to WillPack (an SWW member) who are a Will drafting team who create these documents: “at the time of taking the instructions for the LPA, the Instruction taker must ensure that the company articles and any other agreement between partners/shareholders etc, allow the appointment of Attorneys in their absence. If this is not the case, the clients MUST be advised to change these to allow delegation.
It is also advisable (with the Donors permission) to speak to any other partners of a business to explain that the LPA is being completed to ensure they are aware of the appointment and they understand the responsibilities that the appointed Attorneys will have once the LPA has been registered and is in force. It must be made clear that the Attorneys will only be acting for the Donor’s share of the business. This will also mean, similar to a regular LPA, they will be dealing with someone else’s money and there are regulations in place to ensure the Attorney acts responsibly.
When appointing an Attorney to act on your behalf for a business, you must ensure that you appoint an Attorney shares similar, if not identical experiences to the Donor, same business goals, same ways of trading and understands how the Donors business runs on a day to day basis (examples below). Unlike with a regular LPA where the appointment is largely based on trusting the Attorney, the level of trust in a Commercial LPA is significantly lower, but this should not be ruled out completely. Chapter 7, Part 8 of the Mental Capacity Act Code of Practice states that an Attorney should be someone who is trustworthy, competent and reliable and should also have the skills and ability to carry out the necessary tasks.”
There is a lot to consider when considering commercial LPAs so please speak with one of our experts.