Putting the power in your hands to protect your business
BUSINESS owners risk “a ruinous financial hit” if they fail to take the proper legal steps to safeguard their company’s future in the event of losing their mental capacity.
This may be a physical issue but is more often intellectual deterioration on a spectrum from memory loss to profound dementia.
One of the most important protective measures they can adopt is a Lasting Power of Attorney – but many fail to do so.
Put simply, it could make all the difference to whether their business continues – or collapses.
An LPA is a legal document that allows business owners to nominate and authorise a person of their choice to make and implement decisions on their behalf.
This person – somebody they trust, and who knows their business – is known as their attorney.
With this hugely important document in place, business owners can be certain that management of their business could continue even if they lost the capacity to make decisions yourself.
While it can be a physical issue, incapacity is more often intellectual deterioration on a broad spectrum spanning memory loss to profound dementia.
In most cases, mental incapacity strikes randomly and advances with age.
Without an LPA in place, there would be no one with authority to take control of the running of the company.
When setting up a business, whether as a sole trader, partner or director, the focus is understandably on the bottom line – and not on the possibility of losing mental capacity.
But, with company bosses increasingly finding themselves in that position in record numbers, many are unprepared for what would happen if they became incapacitated. And who would manage the running of their business so it survives – and thrives.
Many assume that a family member or other member of the business will be able to assist – but this is simply not the case.
This is a dangerous assumption to make as no one has an automatic right to deal with a person’s business affairs and so, without the legal authorisation required, the effects could be huge and far-reaching.
Documents could go unsigned, contracts lost, staff unpaid, and accounts inaccessible.
Many banks would freeze business accounts if they became aware of a signatory losing capacity. In turn, this would have a drastic negative effect on the day-to-day running of the business..
No business owner wants to experience or risk these issues and therefore needs to have a robust continuity plan.
A key part of any such continuity plan is the implementation of a business LPA to prevent a business being exposed to risk.
By creating and registering a business LPA, business owners can choose who should manage their business finances, assets and affairs if they became unable to do so.
Many should already have a personal LPA in place but, as a personal attorney is often not someone who would be qualified to run a company, they also need to have a separate LPA that relates specifically to the business.
Clearly the chosen attorney needs to have the necessary knowledge, skills, qualifications and experience to run a business and also they need to be someone who is trusted implicitly to make the decisions as the incapacitated business owner would do.
For this reason, when dealing with partnerships, it is most common to appoint another partner within the business to be appointed as attorney.
For sole traders who lose capacity it would not take long for the business to crumble if there was no one else authorised to manage the same.
Appointing an attorney ensures business continuity, should capacity be lost.
It should also be born in mind that in the event of a serious injury, business owners might lose capacity for a period of time but could regain this as they heal.
With a business LPA in place, someone would be able to continue to management of the company whilst the owner is unable to do so. Then, when he or she wasready to return, the business would still be up and running which would be very unlikely without an LPA.
For those in a partnership, it is necessary to check the partnership agreement as it may already make provision for a partner lacking capacity.
If not, or if further provision is required, then a business LPA would need to be set up and advice taken on its wording so as not to conflict with any provisions that are already in place.
For directors of a company this would also apply to the articles of association.
If a business owner does not have a business LPA in place and you lose your mental capacity then an application for a deputyship order would have to be made with the Court of Protection. This is an expensive and very lengthy process and business owners will have no say in who is appointed to make decisions for them.
This is not a satisfactory outcome for any business owner and, in the months it would take to appoint a deputy, a business would be at risk and would likely take a significant, if not ruinous financial hit.
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