With the October budget pushing legal affairs to the forefront of our minds, the new year is a good time to make a different kind of resolution, one to ensure all your legal affairs are in order.
A good starting place is to consider your business, and in particular how it would continue to run should you lose mental capacity. I frequently find that many business owners have never considered this situation, but if you lost mental capacity and were unable to make decisions for your business, who would then make the important decisions for you, and are you happy with this position? The common answer is probably no. A business Lasting Power of Attorney (LPA) could assist.
An LPA is a legal document which allows you to formally appoint people (your attorneys) to make decisions on your behalf in circumstances where you cannot do so yourself. Many people have heard of an LPA for their personal affairs and relate this to being elderly, but they have not considered, or were not aware, that it can be crucial at any stage of their life, to include both their personal and their business affairs.
Whether an LPA is the most appropriate way to deal with a business owner losing mental capacity, or if there is something else you may need to do instead, will depend on the type of business you have.
A Sole Trader is a single person running a business, and there is no separate legal entity away from the business owner, therefore a business LPA is the most effective way of dealing with loss of capacity to ensure the business continues to run. If a Sole Trader loses capacity, then the business may not be able to survive.
A Partnership Agreement should adequately provide such provision surrounding a partner losing mental capacity. If it does not, then an LPA can be attractive. However, the LPA must be drafted very carefully so it does not conflict with a Partnership Agreement.
Before considering a business LPA, a company’s Articles of Association must be reviewed. The articles may provide for termination of a director’s appointment. If the model articles were adopted, they will provide for termination. Many directors are unaware of this position. If a company’s articles do not provide for loss of capacity then it would be in the company’s best interests to amend their articles to make relevant provision. Our Corporate Team can assist with this.
A business LPA is made using the normal prescribed form for a Financial LPA. The same rules and processes regarding capacity and execution are required as an LPA for personal affairs, however it is important to note that separate LPAs are required to deal with business affairs and personal affairs and your choice of attorneys may differ. Careful drafting of these documents is required in order to ensure each one is limited in their use.
LPAs are important at any stage of your life, whether you own a business or not. Make it a priority this year to get yours done and I will be happy to assist with this important legal advice, in a friendly, down-to-earth, understandable manner.
Call 01604 609560 or email katie.nightingale@dfalaw.co.uk
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Katie Nightingale
Associate Solicitor, DFA Law
