The importance of Commercial Lasting Power of Attorney for your business

With businesses having to think carefully about how they operate effectively in the current coronavirus outbreak, SAS Daniels’ Aalia Ijaz explains how Commercial Lasting Power of Attorney can ensure your business can keep operating should you fall ill.

Running a business involves planning for the future and setting goals. Unfortunately, illness or incapacity is not something we can predict. A Commercial Lasting Power of Attorney (LPA) can help to ensure your business continues to run smoothly should you lose capacity or be unable to run your business due to ill health.

What is a Commercial Lasting Power of Attorney?

A Lasting Power of Attorney is a legal document which allows you to appoint someone you trust to act on your behalf if you lose capacity and are unable to make decisions. You may have heard of the Property and Financial Lasting Power of Attorney which deals with your personal financial affairs. A similar document can be prepared for your business decisions, but it may not be appropriate to appoint the same person for your personal financial affairs and your business decisions as there could be a conflict of interest. You may also prefer to appoint someone who understands the way your business is managed and has a similar commercial attitude.

Why should you have a Commercial LPA?

If you lose capacity but you have not appointed an attorney to make business decisions on your behalf, an application will need to be made to the Court of Protection for an individual to be appointed to act on your behalf. This may not be the person you intended to look after your business affairs, nor may it be the person best suited for the job.

This process can also take around 4 months and during that time it may not be possible to run the business effectively as suppliers and employees may not get paid and proposed agreements may not be completed. This could cause most businesses to come into difficulty and they could be wound up.

Is my business suitable for a Commercial LPA?

Whether you are running your business as a sole trader, partnership or limited company, you will need to consider the potential effects of you losing capacity, and whether a Commercial LPA could protect your business.

If you are a sole trader there may be no other person that could carry on your business in the event of your incapacity. A Commercial Lasting Power of Attorney could assist to ensure that someone you trust could continue to run your business or wind it up without the need to apply to the Court of Protection.

If your business is a partnership then much will depend upon whether or not you have a Partnership Agreement in place. If a Partnership Agreement is in place, this is likely to dictate what is to happen in the event of your incapacity. In the absence of a Partnership Deed or Commercial LPA, an application to the Court of Protection may be necessary.

If you are a director or shareholder in a limited company, the company’s governing documents (the Articles of Association and any Shareholders Agreement) may contain provisions which require you to cease to be a director, or require you to offer your shares for sale back to your fellow shareholders in the event of your incapacity, in order to give your fellow shareholders control over the Company. You should review the company’s governing documents for these provisions prior to entering into a Commercial LPA. Our corporate team can assist you with this.

Unfortunately, if you are a director, it is not usually possible (unless the governing documents allow this) for you to delegate your functions as a director through an LPA, as the position of a director is a personal appointment. However, if you are a shareholder with voting rights, an attorney, if appointed, may be able to exercise those rights on your behalf, subject to the governing documents.

It is always worth reviewing your governing documents to ensure that you can protect the future of your business in the event that you are unable to make decisions.