Robert Cartmell explores the reasons for creating a “Business Lasting Power of Attorney”

The reasons why a Business LPA provides better coverage for your Business by estate planning expert Robert Cartmell.

I, Robert Cartmell, having worked in ‘estate planning work for over 25 years and a common issue to arise with any Lasting Powers of Attorney (LPA) is the extent to which attorneys are empowered to take business-related decisions.

What is an LPA?

An LPA is a legal document which empowers other people (Attorneys) to make decisions for you where you are unable or unwilling to so yourself. LPAs are usually considered to be with an eye on later life potential for physical or mental incapacity.  There are two types of LPA – one for financial decisions and one for health and welfare decisions.

The LPA for financial decisions is wider in its scope.  It can be used both when you have mental capacity (for example, for executing documents on your behalf if you are away on holiday) and if you later lose physical or mental capacity.  The health LPA covers health decisions when you lack capacity to make them.

When should you consider having a Business LPA?

Typically for a standard LPA, most people appoint their nearest and dearest as Attorneys, such as a spouse and/or adult children whether jointly or independently of each other.

However, for persons operating a business interest, such as those in a partnership or as director of a company, it can be problematic.

  • the Attorney, being the nearest relative, may have little or no involvement and experience in the Donor’s business affairs;
  • not only that but it can then be daunting for the standard ‘Attorney’ to have the power to make decisions under the usual LPA; and
  • it can be unsettling for those partners/co-directors to have the family Attorney making decisions on behalf of their partner/co-director and without apparent direction or instruction, other than under the normal LPA powers.
  • finally, the business set up (and regulation/insurance requirements) may make it difficult or impossible for a spouse, partner or children to make decisions on your behalf. There is no guarantee that your business would be able to operate successfully if you have not made appropriate arrangements.

How the Business LPA will differ from the main LPA

Under the standard LPA, your spouse or children make day to day decisions about your finances and that is within their reasonable remit, no doubt.

Would that apply to your business interests? Do they understand what is required day to day? Do they have appropriate expertise or professional qualifications?

So, there is a real need for action here. Many business people only make LPAs with their personal family considerations in mind.  Do they consider the wider impact of potential incapacity during working years?

A Business LPA should be a key part of your succession planning toolkit but for some reason it is often ignored and left unattended.

A Business LPA will differ from the standard financial LPA in that you can appoint and even earmark specific personnel to undertake certain important functions relating to the Business.

The scope of a Business LPA

For the above reasons, it is important to consider making two separate LPAs for financial decisions. One LPA covers specifically your business and the other to cover other personal (non-business) decision-making.

Some basic examples of when a business LPA could be needed:

  • Authorising payroll
  • Making payments to your suppliers
  • Contract decisions – signing a contract or engagement on behalf of the business
  • Ensuring secure and trusted access to the business bank accounts for making payments and ensuring transactions are completed. Giving CHAPS payment authorisation or other significant payments outside of the standard scope.
  • More important decisions such as those relating to the status and structure of the business, including sale and transfer of shares.

An existing LPA for financial decisions may not be appropriate or indeed, practicable for some or all of the above.

Other Considerations

If you are a member of a partnership or LLP or a director of a company with another person or entity, what are the wider considerations?  How is decision-making made within that business?

Our best advice in such cases is to approach the matter openly with your co-business partners/directors and to consider whether you seek advice as a collective on the matter.  A review and understanding of your existing partnership agreements/shareholders agreements (if you have them) would be appropriate before you finalise your Business LPA.  Are there specific director duties that need to be factored in – or decisions as shareholder?

If you are in a family business: incapacity of a close family member can be compounded where there is a business involved.

Please seek our advice to ensure that your Business LPAs are in keeping with your business continuity and succession planning. You can find out more here, or download our guide.