While managing a small business can be incredibly rewarding, it also comes with substantial responsibility. As an owner, your company might stand or fall based on your actions, leadership, and decisions. But have you ever considered how things would proceed if you were unable to make key decisions yourself? What happens if an unexpected accident or illness renders you unable to oversee the critical aspects of your business, even temporarily?
For many business owners, dealing with such eventualities is uncomfortable to think about, but it’s essential for continuity and the safeguarding of both personal and business assets. A Lasting Power of Attorney (LPA) offers a legal solution to help ensure that when unforeseen events occur, someone you trust can take charge. This legal tool is primarily known for personal matters, but its importance extends into the realm of business, making it a necessary consideration for small business owners.
A Lasting Power of Attorney is a legal document that enables you, the “donor,” to appoint someone you trust, referred to as the “attorney,” to act on your behalf. There are two main types of LPA in the UK:
– Property and Financial Affairs: This allows your attorney to access your bank accounts, manage your assets, pay bills, and undertake financial decision-making.
– Health and Welfare: This type covers decisions about your medical treatment, where you live, and your day-to-day welfare, but only comes into effect if you’re unable to make such decisions yourself.
The one most relevant for business owners is the Property and Financial Affairs LPA, as it can empower someone to manage both personal and business finances and property. Once the LPA is registered with the Office of the Public Guardian, it allows this individual to legally step in when needed to make decisions on your behalf.
Business owners can also opt to create a Business LPA, which is distinct from an LPA for personal affairs and focuses exclusively on the commercial aspects of life.
This article delves into why this legal tool is crucial for safeguarding your business interests and what small business owners must consider when creating an LPA.
If you run a small business, establishing a Lasting Power of Attorney shouldn’t be regarded as optional, but essential. Here’s why:
1. Business Continuity: Your business may face significant risks without proactive planning. Should you become incapacitated without an LPA, the operations of your business could grind to a halt until the courts appoint a deputy to manage your affairs. This could take months, causing your business to lose clients, suffer financial consequences, and damage its reputation irreparably.
2. Avoid Legal Complexities: Without a designated attorney in place, the process of granting a temporary decision-maker can become a legal quagmire. Courts may decide who should manage your affairs, possibly choosing someone unfamiliar with the needs of your company, its inner workings, or your vision for the future. This could create unnecessary challenges or lead to poor decision-making.
3. Prevent Financial Loss: It’s not just about the continuity of day-to-day operations; a business LPA can help safeguard your capital and investments. Your attorney can access bank accounts, handle payroll, pay suppliers, manage assets, and ensure liabilities are managed in a timely manner.
4. Personal Balance: Many small business owners mix their personal and business finances, particularly when they’ve initially self-funded their ventures. By having an LPA, your attorney can manage your financial accounts, ensuring both your personal and business finances are protected through turbulent periods.
5. Peace of Mind: Simply knowing that a trusted individual will be able to handle matters should you fall ill or become incapacitated provides peace of mind, not just for you but for your family, employees, customers, and any partners or investors involved in your business.
The responsibilities of the person acting as your attorney can be numerous and complex, requiring a suitable candidate who will act in the best interests of your business. Here are some key factors to consider when deciding who to choose:
1. Business Knowledge: The person you appoint should ideally have strong knowledge of your business and industry. They need to understand how the company operates, its key revenue drivers, and existing business structures. This could be a business partner, a trusted senior employee, or possibly a family member with commercial expertise. Their familiarity with your long-term vision is vital to ensure that they make decisions consistent with your goals.
2. Trustworthiness: Since your attorney will have legal authority over your company’s affairs, they must be someone you trust implicitly. In cases where business dealings are complex, there’s a risk of conflict of interest, financial mismanagement, or failure to act with due care. So it’s essential to choose someone who has integrity and a proven track record of sound decision-making.
3. Understanding of Legal Obligations: Running a business involves adhering to multiple legal requirements, such as paying taxes, employment law compliance, contract management, and health and safety regulations. Your attorney will need a good understanding of such obligations or be ready to consult with professionals such as solicitors and accountants when necessary.
4. Willingness to Assume the Role: It’s not enough to simply identify someone capable of acting on your behalf. They must also be willing to take on this responsibility. Before formally appointing an attorney, have a candid discussion with them about the possible scenarios in which their involvement might be required. Make sure they’re prepared for the potential scope of the role and feel confident they can execute these duties if required.
5. Backup Attorney or Delegation Mechanism: Consider whether you want to appoint a secondary attorney or attorney team to enable decision-sharing and accountability. Having multiple attorneys could provide a network of support, ensuring decisions aren’t under the sole discretion of one individual. This is particularly useful if one attorney lacks expertise in certain aspects of your company’s operation but excels in others. Business matters often demand quick responses — it’s helpful to have more than one capable person overseeing urgent decisions if the primary attorney is unavailable.
While you can use a general Property and Financial Affairs LPA for your business, a Business LPA allows you to be more specific regarding the commercial scope of the attorney’s powers. Here are some critical components of this legal document:
1. Defining Business Assets and Powers: In the LPA, you need to be explicit about what powers the attorney will have in relation to your business. You may want them to handle operations, access specific business bank accounts, manage assets like property or inventory, and even oversee CSR initiatives. Alternatively, you might restrict them from certain decisions — for example, prohibiting them from selling the business or diluting its equity unless specific conditions arise.
2. Business Structure: The form of your business – whether sole trader, partnership, or limited company – will influence how the LPA is crafted. In sole proprietorships, you are the business, so granting authority via an LPA is straightforward. However, in partnerships or limited companies, additional layers such as shareholder agreements, articles of association, or partnership agreements need to be considered. These documents may already outline what should happen if a key individual becomes incapacitated and should align with your LPA instructions.
3. Customisation and Legal Advice: Standard LPA forms may not have the customisations you require for business purposes. Therefore, seeking legal advice to draft a detailed Business Lasting Power of Attorney is recommended. A solicitor specialising in business law can ensure the LPA reflects your unique needs, complies with relevant legislature, and is aligned with broader company governance procedures.
4. Power Activation: Unlike the Health and Welfare LPA, which can only come into effect upon incapacitation, a Property and Financial Affairs LPA can be put into use at any time, even if you’re still capable but require assistance. This flexibility needs to be a discussion point: you may prefer the attorney to take over only when doctors have certified your incapacity, or you might allow extra discretion during busy periods.
While an LPA provides long-term legal protection, conditions change, and your appointed attorney may no longer be in the best position to act on your behalf. For instance, they may leave the company, fall ill themselves, or no longer share your business vision. Therefore, it is advisable to review your Business LPA regularly.
Initial reviews can take place annually, but you should also revisit the document when substantial changes occur either within your personal or professional life — such as restructuring the business, a change in key stakeholders, retirement, or alterations in company operations.
Remember, an LPA can be replaced or amended at any point, so long as you maintain the legal capacity to make decisions. It’s far better to proactively update this document than to risk financial or operational disruptions.
A well-run small business often depends heavily on the input and decision-making of the owner. While no one likes to contemplate their own cognitive decline or health struggles, the reality is that anything can happen, and failing to prepare can leave your business vulnerable. A Lasting Power of Attorney ensures that your company is protected and continues to function smoothly in your absence.
By appointing a trusted attorney who understands your business needs, you offer a safety net for yourself, your staff, your clients, and investors. This measure not only protects your commercial interests but also secures the mindset that your business can survive any unforeseen disruption, reinforcing a robust continuity plan.
In an increasingly unpredictable world, the decision to create an LPA tailored to business operations is not just good practice — it’s critical for safeguarding the future of your livelihood.
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