Business Lasting Powers of Attorney - a no brainer!

30 September 2016

Is your business protected if you, a fellow director or partner are unable to make decisions? Lucy Butterfint provides an overview of the Business Lasting Power of Attorney and explains why it pays to have one in place.

If you own a business either as a sole trader, partner, or you are a company director ask yourself whether you are sure that your business is protected if you or a fellow director or partner is unable to make decisions.

What would happen to the business if:

  • following a road traffic accident or other injury you became mentally incapable?
  • you developed a medical condition which itself, or which the treatment, mentally or physically incapacitates you, even if only periodically?

Two pieces of legislation, the 2013 Mental Health (Discrimination) Act and the Equality Act 2010, have raised a serious issue which could affect many businesses, as there is no longer a mechanism in law to remove directors and partners from a business on the grounds of mental incapacity alone, without this being vulnerable to a claim for discrimination. Mental, as well as physical incapacity, is now one of the "protected characteristics" within the Equality Act provisions.

The only lawful way to remove a mentally incapable business director or partner, on the basis of mental incapacity is through an application for a Deputyship Order through the Court of Protection. This can take several months and be very expensive, with your business suffering and exposed to a great deal of risk in the meantime.

If a bank discovers that a partner, director or sole trader lacks mental capacity there is a risk that they will call in any loan, withdraw any overdraft facility or in the worst case freeze the business accounts entirely, in order to protect their money.

You could also have a situation where a mentally incapable person is entering into contracts which are enforceable against the business.

If you are a sole trader then the risk is perhaps more obvious as there is unlikely to be anyone else who has the necessary authority to access the bank accounts of the business. There are also issues for partnerships and Companies

If you are a partner then perhaps you own assets in your personal name outside that of the partnership, such as premises, which are leased to the partnership. Without a Lasting Power of Attorney no one would have the authority to deal with this, or access your capital account, on your behalf and this, in turn, could seriously affect the partnership business as well as your family.

The Articles of Association usually govern what happens if a Director loses their mental capacity. However, some of these clauses may now be seen as discriminatory and it is always best to check the documents in place and have a Lasting Power of Attorney. If you are a Director you are also likely to be a shareholder. Every shareholder should have a Lasting Power of Attorney in place authorising someone else of their choosing to be able to exercise their voting rights. This is vitally important if you are the majority shareholder as without a Lasting Power of Attorney it would prove a real hindrance to the continuity of the business.

A simple miss-step, car accident, serious illness or stroke could paralyse or kill off your business leaving it unable to pay wages, tax, or creditors and destroying its hard-won reputation.

Careful thought should be given to your choice of attorney and whether you should have a family member or the same person appointed as would deal with your personal finances. This to include the dynamics of the business and the personalities involved, as well as the expertise and business experience of your attorney.

So whether you are a majority shareholder, company director, partner or sole trader the best advice would be to check your partnership agreement or Shareholders Agreement, amend them to remove any discriminatory clauses, and ensure that you have a Lasting Power of Attorney in place which can work in conjunction with your business documents to ensure it's smooth running.

They are a very straightforward means of protecting your business not only for yourself but also for your fellow business owners, shareholders and employees. Best of all the cost of making them is tax deductable!

Different issues arise depending on your status within your organisation, so to ensure this doesn’t happen to your business, please do contact me or a member of our team and we will be happy to help.


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