Lasting Powers of Attorney (LPA) are not only for personal use. If you’re a company director, partner or sole trader, it’s in your best interests to ensure you’re protected, if for whatever reason it turns out you can’t end up making certain decisions.
This can happen for instance:
- if you’re out of the country on business or holiday;
- you have a medical condition which may physically or mentally incapacitate you;
- following an accident you become unable to make decisions.
These all leave your business exposed to risk. To protect your interests, those of your company and your family, you should consider making a Financial LPA for your business. All businesses should have Lasting Powers of Attorney in place, if not and you lost capacity you would need a Deputy appointed which can take several months to arrange. How will your business survive during those months with no one able to decide on your behalf?
A Financial LPA allows you to appoint someone you know and trust to make decisions for you when you’re unable. Ideally it should not be one of the other partners or directors, but someone who knows you well and how you like to make decisions. The Financial LPA can be used straight away once it’s been registered with the Office of the Public Guardian. It has the added advantage that if you lose sufficient mental capacity to manage financial decisions, the person appointed in your Financial LPA can make them for you.
Many businesses operate as sole traders or with one or two directors. If anything happens to one of these individuals, such as a road traffic accident, a serious sports injury, an operation that goes wrong, or they were in any other way incapacitated for a period of time this would seriously affect the running of their business. There is no automatic assumption that if there are two or more directors, these directors would automatically be able to continue running the company. In most instances the companies articles dictate how many directors are needed to make company decisions. If you do not have sufficient directors, then your company has a problem.
When it comes to paying bills, the majority of companies invoice on either a 14 or 28 day basis. If a director is unavailable for more than two weeks creditors would soon start to demand payments. If the director is unavailable for 28 days or is unable to sign cheques, on day 29 creditors would be considering what suitable actions to take regarding the outstanding invoice.
If the company has to service a business loan or mortgage through a bank, if one of the directors is incapacitated for a period of time, they will consider whether to pursue recovery of their loan or outstanding mortgage. Equally, banks may consider freezing the company’s bank accounts, as one of the directors is no longer able to function or sign as a director.
In today’s climate many companies use personal assets as guarantees against business losses. This might be your house, other valuable assets, or in some instances even someone else’s house (with their permission). If your company went in to liquidation, as no one could make company decisions, creditors would not only seek whatever assets the company held, but also any assets held as guarantee. This may result in you losing not only your company but your house as well (or someone else’s house).
The question to ask yourself is this: As a director, is my business protected if I or a fellow director were unable to make decisions? If you can answer yes, then maybe a Financial LPA is not for you. If the answer is no, or you’re not sure, then you should investigate making a Financial LPA to protect you, your business and your family.