Why have a Business Lasting Power of Attorney?

If you don’t have a Business Lasting Power of Attorney (Business LPA) if the business owner, one of the partners or directors lacks mental capacity:

• The bank is more likely to freeze a business bank account, even if there are other signatories.
• Contracts may not be valid, declared void or unenforceable.
• There can be regulatory breaches affecting other partners or directors.
• There is crisis management implications for the whole business.
• It may also affect the businesses insurance.

Alternatively you can make a Business LPA have have peace of mind.

Removing Partners or Directors

It’s can be hard to remove a partner or director who lacks mental capacity as they cannot consent to being removed. They can be removed using a Business LPA. If there’s not a Business LPA in place an application can be made to the Court of Protection to have a financial Deputy appointed. This application can take several months, during which time:

• the business will not be able to operate properly
• decisions may not be appropriately made
• other businesses may not wish to do business with you
• even if there are other partners or directors

Personal LPAs v Business LPAs

If you have made a personal LPA appointing your spouse, a relative or a friend they may not be the best person to make business decisions. Often they are, but not always. If they have never run a business or do not know how your business operates, do you want them to be make your business decisions for you?

If you got divorced, unless the LPA stipulated it was to continue afterwards, it comes to an end.

Can the Personal LPA attorney act?

There are circumstances where personal LPA attorneys are not permitted to act or make decisions for certain types of businesses.

Lasting Powers of Attorney book

Craig Ward, Baron of Lundie and solicitor, one of our partners wrote the Law Society’s textbook on Lasting Powers of Attorney (2016) now in its 3rd edition. This contains, for the first time how to create and use business LPAs. Together with appendices on business law and directors responsibilities.

What is a Business Lasting Power of Attorney

From Lasting Powers of Attorney (3rd Ed) 2016 by Craig Ward published by The Law Society

A business Lasting Power of Attorney allows the donor to appoint an attorney to make decisions concerning their business interests, when they are unavailable or lack mental capacity. Research conducted by this author since 2012 has found that different jurisdictions, including the UK, may by using EPAs, LPAs or Court of Protection orders to authorise deputies to make business decisions.

Donors may create multiple Lasting Powers of Attorney (LPA) specifying which matters, personal or business the LPA relates to. Creating multiple LPAs introduces the concept of intention. The donor creating multiple LPAs needs to demonstrate that they understand the nature and consequences of each specific LPA.

The Court of Protection, under the Mental Capacity Act is authorised to make decisions regarding the donor’s (P’s) business interests. This includes decisions regarding:

the carrying on, on P’s behalf, of any profession, trade or business;

(e) the taking of a decision which will have the effect of dissolving a partnership of which P is a member;

(f) the carrying out of any contract entered into by P.

Provisions (d) and (f) envisage the continuation of:

‘… any profession, trade or business …’.

An attorney is authorised to make decisions regarding a particular business. Just what is a ‘business decision’ and one that is part of ‘going to work and working as part of the business’ is usually fairly straightforward. If the decision relates to running the business, such as:

• making a decision which could start or end the business;
• authorising a business loan and giving a personal guarantee;
• acting as a part of a recognised management structure governed by jurisdictional provisions
• it is likely to be a business attorney decision.

Types of business

Business environments may be divided into five types:

• Sole traders.
• Partnerships.
• Limited partnerships.
• Limited liability partnership (LLP).
• Companies.

Business LPA attorneys make decisions subject to the MCA and applicable legislation governing the donor’s type of business.38 Decisions should be made in the donor’s best interests,39 applying the agency principles and considering Re Buckley [2013] COPLR 39.40 Re Buckley shows the association between an agent subject to relevant business legislation and an attorney authorised as the individual’s agent.

Business LPA use prior to incapacity

As with a personal financial LPA, a Business LPA may be used prior to the donor losing mental capacity. This follows the rules of agency: as the donor (the principal) still retains sufficient understanding they may give instructions to the attorney (the agent) or revoke the authority (LPA).