It is important for business owners to consider what would come of their business if they become incapacitated by an illness or injury.
What is a Lasting Power of Attorney?
There are two types of Lasting Power of Attorney (LPA); one relating to your property and finances, and one relating to your health and welfare.
A LPA is a document that gives an appointed person the ability to make important decisions on your behalf. This person (known as an ‘attorney’) will have the ability to make decisions as if they were you.
Who needs a LPA?
If no attorney is put in place then potentially important day-to-day decisions that keep your business running can not be made; for example, payment of employees and suppliers or signing new contracts. The implications for not having a contingency in place could be catastrophic for your business. Bank accounts can be frozen by the bank, even if the account is in joint names.
Small businesses, partnerships and sole traders are most likely to require a LPA for their business decisions. If you become incapacitated, you should not assume that family members or business partners will automatically be able to make important decisions on your behalf.
As a sole trader, you are running the business as an individual and it is not a distinct legal entity. Therefore, if you become incapacitated, your business is exposed to significant risk.
Partnerships will be subject to the partnership agreement. The terms of the agreement will need to be consulted as incapacitated partners may be automatically removed from the partnership. Similarly, LLPs should review their articles of association and whether a member is removed due to incapacity. It should be noted that under the Mental Health (Discrimination) Act 2013 it is discriminatory for directors and partners to be removed for this reason and they should be supported (via a LPA) instead.
What if you don’t make a LPA?
If no attorney has been appointed then it is possible to make an application to the Court of Protection and a deputy can be appointed. However this process is significantly longer (it can take over six months) and can cost a lot more than putting a LPA in place ahead of time.
Hopefully a LPA is never required, but the cost of putting one in place is a small price to ensure that your business can successfully continue. These issues can affect the young and healthy, so all business owners should ensure they have an effective continuity plan.