As a sole trader, partner in a partnership or company director, your ability to make decisions and sign off on important business matters is likely to be key to the functioning and success of your business. Gabriella Harrison discusses the business implications of an unexpected event, such as an accident, illness or injury affecting your ability to make such decisions.
At any time, you may be lose the ability to make both personal and business decisions, for example due to an accident, injury, physical or mental illness. Or perhaps a situation may arise where you are required to be out of the country for an extended period of time.
As a business owner, having a Lasting Power of Attorney in place is vital and must be prioritised as a key consideration when analysing business risks. The document acts as an insurance policy to ensure that someone that you trust can step into your shoes and make business decisions on your behalf, in the event that you are unable to make those decisions. Once registered with the Office of the Public Guardian, it is ready to be used if needed.
In a business context, your attorneys can:
• Access your business bank accounts and liaise with your bank;
• Pay your liabilities, such as third party suppliers, employees and loan/mortgage repayments;
• Enter into vital contracts allowing the business to continue to trade;
• Invest assets; and
• Buy and sell property.
It is advisable for your attorneys to be individuals who have the relevant skills and experience to act on your behalf, such as a trusted advisor or senior employee. As you can appoint a number of attorneys to act on your behalf, you may choose to appoint such an individual alongside a spouse or other family member. All attorneys must follow the Code of Practice set out in the Mental Capacity Act 2005 and this prescribes that an attorney must act in your best interests and in good faith. This would mean acting in accordance with your views and beliefs prior to your inability to make decisions and taking into account your previous course of dealings.
Interestingly, most people are not aware that such documents exist and falsely believe that family members or your 'next of kin' can act on their behalf if required. Without a valid power of attorney, no person has the authority to act or speak for you. In addition, family members may not always be the most appropriate persons to action business decisions.
If you do not have a Lasting Power of Attorney and you cannot make business decisions, institutions such as banks will not discuss anything with a third party due to data protection and your business assets may be frozen. If you run an owner-managed business, wages, rent and other liabilities will not be paid. Contracts may not be entered into. The ramifications of your inability to act spreads across a magnitude of business stakeholders. In these circumstances, your family members, friends or business advisors would need to apply for a deputyship order from the Court of Protection in order to make decisions for you. This is an expensive process and an effective order can take several months to obtain. The disruption caused to the running of your business in the meantime could threaten its survival.
A Lasting Power of Attorney can be regarded as an insurance policy to ensure that your business can continue in the event that you as a key decision maker cannot fulfil your role. Arguably, the cost of putting the documentation in place is nominal in terms of securing the ongoing success of your business.
In making a Lasting Power of Attorney, it is important to seek advice and guidance to ensure that the powers are limited to business decisions, giving careful consideration to their scope and the implications of these powers.
A Lasting Power of Attorney can be revoked at any time, for instance if you retire or sell your business.
It is important to ensure that Lasting Powers of Attorney do not conflict with key business documentation, such as articles of association or partnership agreements as these may contain express provisions regarding the incapacity of decision makers. Our Private Client Team in conjunction with our Corporate team can ensure that the documentation works for you in relation to your individual circumstances.
If this article resonates with you, please contact Gabriella Harrison or a member of the team to discuss your requirements further.