As a business owner, it almost goes without saying that you need to ensure your business is protected from unforeseen circumstances. You may have already taken steps to protect it, such as obtaining key person insurance, arranging an appropriate overdraft facility with the bank and having a good shareholder / partnership agreement in place.
In our experience hard-working business owners are usually very good at dealing with the financial aspects of protecting their business, but tend not to consider their absence as a serious possibility, so make limited preparations for the operational impact.
The reality is that anyone can become incapacitated at any time through illness or accident, so it makes sense to prepare for that possibility. Depending on the length of time you are out of action, the consequences for your life may be minimal, but the consequences for your business could be more significant. For example:
- If you are the only signatory for payroll, what will happen if you are unable to sign for the foreseeable future?
- How will the business operate if a Co-Director is unable to co-sign contracts or guarantees?
What is a Business LPA?
A Business Lasting Power of Attorney (LPA) is an effective way of protecting your business from the operational impact of sudden and unforeseen absence.
As with all LPAs, it is a legally binding document, which assigns one or more trusted people to help you make decisions or to make decisions on your behalf. These trusted people are called Attorneys. For more details on Lasting Power of Attorneys please see Lasting Powers of Attorney.
A Business LPA deals with business assets only and should appoint an Attorney with the requisite qualifications and abilities to manage your business for you for a sustained period if necessary. For example, if you are a dentist running a dental practice, then appointing your spouse who has expertise in say, retail, is not going to be suitable. Rather, partners of your dental practice or other such professionals would be better suited to managing your practice. It is important to note that some industries impose regulatory restrictions on who can manage a business within that profession.
Business LPA’s can be as detailed as you like and can appoint multiple Attorneys to handle different areas of the business. They provide a platform for you to explain to your Attorney(s) exactly how you would like your business to be run and what they should do with it in certain sets of circumstances. This may include the way in which they continue to keep it going whilst you are unable to, or the steps you would like them to take to close the business by way of sale, transfer or otherwise.
Your Business LPA should also give permission to your Attorney(s) to employ the services of other professionals, generally or specifically, to assist them. As, for example, if you have a financial advisor who usually helps you with certain investments, they will require your express permission to liaise with your Attorney or they would be unable to continue managing your investments without a court order.
Are There Other options?
Another way in which this can be addressed is by putting in place a Property and Financial Affairs Lasting Power of Attorney in which you appoint an Attorney who would be responsible for looking after your interests in your business.
However, a Business LPA ensures an appropriate separation between your business and personal affairs so that you have the right person looking after each aspect of your life. Putting in place a detailed business LPA will ensure that your business interests continue to operate smoothly in the event that you are unable to manage them yourself. You might consider making it a prerequisite for all company stakeholders.
In addition to a Business LPA we also recommend that business owners consider succession planning and prepare a detailed Business Will to preserve their business and personal interests should the worst happen, you can read more about succession planning and Business Wills here.
For more information on preparing a detailed and effective Business Lasting Power of Attorney to protect your company contact Sangeeta Rabadia.