Many business owners are aware of LPAs for their personal circumstances but do not always consider them for their business.
In our experience, for those considering it as a tool for business continuity, an LPA is seen as something that does not need to be addressed until retirement age.
In fact, a Business LPA can be a crucial part of a business’ risk management strategy from a very early stage. Businesses are faced with an expanding range of potential risks to mitigate against. While new threats, such as cyber-attacks and security, are growing, the simple matter of a key person being unavailable to make a decision, on a temporary or permanent basis, can have just as much impact on the business.
Setting up a Business LPA is an important way of protecting your business against the potentially devastating risk posed by a business owner falling ill and being unable to run the business. It can also cover your business interests for times when you are away on business and unable to carry out your usual duties or are only temporarily incapacitated.
What is a Business LPA?
The LPA is a legal document, which allows you to appoint someone to act and make decisions on your behalf, including if you should you lose the capacity to do so in the future. This could be because of dementia, or the result of an accident causing a brain injury, for example.
There are two types of personal LPAs, which cover finances and health and welfare. A Business LPA works in a similar way, but deals with the assets and financial aspects of your business. The person you appoint to make decisions about the business on your behalf, should they need to do so, is referred to as your attorney.
The risk of not having a Business LPA
The biggest advantage of a Business LPA is that, once registered, it is ready to be used straight away and so the attorney can step in immediately. With no LPA in place, the alternative is to apply for a Deputy to be appointed which can take several months to put in place and can be costly.
The question for you is whether your business could continue without any negative impact whilst waiting for the order to come through. Would there be any impact on the business without that person in place? Could the business carry out simple actions such as make payments or file accounts or returns? The impact on your relationship with advisors, customers and suppliers should also not be underestimated. In around 70 per cent of cases, banks will freeze the account in such a situation.
A Business LPA may not be suitable in all circumstances. For example, if you are a limited company you may have a sufficient number of directors to continue to run the business without impacting on the quorum for meeting or voting requirements. However, it is important that it is considered from a risk management perspective.
Who needs a Business LPA?
We would recommend that anyone who runs a business – whether they are a sole trader or at the head of a large company – at least considers a Business LPA. For sole traders and partnerships, an LPA will often be the best course of action.
Many of our younger business clients feel they do not need a Business LPA. However, it is important to remember that these documents are not only relevant for older people. Anyone can suddenly become unable to run a business as a result of an accident or illness. Without having a Business LPA in place, such an event could have a catastrophic effect on your business.
Are you affected by this issue? Do you need legal advice?
Appointing an attorney
When setting up a Business LPA, there are a number of issues to consider when choosing an attorney. The attorney must be someone who you would trust to make important business decisions on your behalf and carry out key duties, such as being a signatory on bank accounts and paying employees.
If you are in a professional role, such as a lawyer, accountant, vet, dentist or optician, you must appoint an attorney with the same professional qualifications.
The decision can be more difficult for sole traders. If you are an electrician or plumber working alone, for example, you will not have a team around you. In this situation, many people choose to appoint a spouse or close family member as their attorney. In this case, seek legal advice to ensure there will be no conflict of interest between their needs and the need of the business.
An important factor in successfully setting up a Business LPA is also speaking to senior members of your business and the proposed attorney. Is the attorney happy to act? How would that make your senior members of staff feel? Would it work? These are all important questions that need to be considered.
Keeping your LPA up to date
When you have set up a Business LPA, it is important to check it is still up to date and fit for purpose. This can be incorporated into your reviews of your business continuity plan. It is also vital to ensure that your attorneys understand what their role would be, should they need to act on your behalf.
Whatever your age, and whatever the size or nature of your business, having in place an up to date Business LPA is a key ingredient in any company’s risk management strategy.
For any help or advice on these, please contact Sarah Cornish in the Wills, Probate and Trusts team on 01579 347600 or [email protected] or Kirsty Davey in the Corporate and Commercial team on 01326 214034 or [email protected].