Just as important as business growth and profitability is planning for business continuity. 

What would happen if the person at the heart of the company suddenly lost mental capacity?

Who would deal with the bank? Who could sign contracts? Who would speak to employees, customers or suppliers?

We have previously touched on general Lasting Powers of Attorney (LPA) in our article “With great power comes great responsibility: Lasting Powers of Attorney (LPA)”

In this article, we focus specifically on how LPAs can be used in a corporate context, and more importantly, what they can and cannot do. 

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What is a Business LPA? 

In our previous article, we have touched upon the two different types of LPAs, a Health and Welfare LPA, and a Property and Financial LPA. 

A Business LPA is simply a Property and Financial Affairs LPAs that is drafted specifically to deal with business affairs. 

A business owner could, for example, appoint a family member under a personal financial LPA to manage their personal finances if they lose capacity, whilst appointing a trusted business partner to deal with their business interests, in a Business LPA. 

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I have a Business LPA in place, is that everything I need? 

Not necessarily. One of the most common misconceptions is that once a Business LPA is put in place, the attorney can simply take over the running of the business if you lose capacity. 

The reality, however, is that your attorney’s power also hinges on the company’s constitutional documents. For sole traders, your attorney’s power will generally be limited by the restrictions within your LPA. For partnerships and companies, there is another rope your attorney is tied to – the partnership agreement, or the company’s articles. 

It is important, therefore, to review your company’s constitutional documents to make sure that all the pieces fit together. 

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What can my Business LPA do, and what can’t it do? 

In a company, a Business LPA is valuable at a shareholder level rather than board level. What this means is that your attorney can exercise rights attached to your shares under a Business LPA, but it will not generally allow your attorney to “step into your shoes” as a director. 

This is because under the Model Articles, directors act collectively as a board. A directorship is a personal appointment and an attorney appointed under an LPA does not automatically become a director. For companies with a sole director, if the sole director loses capacity and there is no arrangement in place, the company may find itself paralysed by having no directors. The solution for this, however, does not always lie in the Business LPA, but in the company’s articles of association.

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A Business LPA can certainly be helpful, but it is not the key to every lock. The real question is whether your company has the right mechanisms in place to deal with the unexpected.

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Our Corporate team at FMGS are more than happy to discuss this further to help you put the appropriate arrangements in place. For an initial discussion, please contact us at 01254 828 410 or via email at enquiries@fmgs.co.uk. 

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This article is for information purposes only and is not intended to amount to legal advice to any person on a specific case or matter.

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