Why minding your business may pay dividends?

We all hope that throughout our life we will be able to make decisions about our affairs including those which impact on our health and wellbeing.  However, recent statistics have shown that 25% of the UK population will, at some point in their lives, experience issues with their mental health which may mean they are unable to do this.

How can a Lasting Power of Attorney can Help?

An LPA is a legal document in which you authorise a chosen person (an attorney) to make certain decisions on your behalf if you lose mental capacity to do this yourself.

The decisions that you authorise your attorneys to make can be either in relation to your finances, for which an LPA for property and affairs will be created, or in relation to your personal life, where an LPA for personal welfare will be created.

Perhaps you feel that an LPA is not necessary as family members can automatically step in to make these decisions for you.  Unfortunately, this is not the case, as family members do not have an automatic right to make decisions on your behalf.

What to do if you run a business

If you run a business as a sole trader, through a partnership or through a company you should consider putting a business LPA in place so that your business can continue to trade in the event of you losing capacity. The remainder of this article will focus on the issues facing businesses which are trading through a corporate structure.

The Importance of the Articles of Association

The articles of association set out the rules on how your company is run so it is important to check these first to ensure you have authority to appoint an attorney.  Most companies are governed by what are known as “Table A” articles which are a default set of documents.

For companies incorporated on or after 28 April 2013 under “Table A” articles, the Mental Health (Discrimination) Act 2013 provides that directors who have lost capacity must be supported in their role rather than removed from it. The only exception to this rule is if a medical practitioner confirms that a director will be unable to fulfil his or her role as a director for at least 3 months due to losing mental capacity.

If your Company was set up under an earlier version of the “Table A” articles, it will contain different provisions relating to the termination of a director’s role due to mental incapacity and you may wish to consider updating these.

Can I have more than one LPA?

You can put any number of LPAs in place providing none of them conflict with each other.  You could, for example, consider making an LPA for certain attorneys to manage your personal assets (i.e. your home and personal bank accounts), and another one to cover your role as a director.

If you are considering making two LPAs, they should contain specific instructions limiting the scope of the attorneys’ powers – for example, a personal LPA should specify that your attorney will have general powers in relation to your personal affairs except for your role as a director which is covered under a separate business LPA.  Your business LPA should contain specific instructions in this respect too.  Your attorneys will then be clear about their powers and will not encroach on the others’ responsibilities and decisions. You may also wish to put a separate letter of wishes in place which gives your attorneys more guidance and direction on your vision for the business and the markets in which it operates.

You could for example, appoint your spouse to make decisions about your personal property and affairs whilst someone with suitable experience as your attorney in relation to your role as a director.  If you also own shares in the company these will be dealt with under your personal LPA rather than your business LPA. Therefore, you should consider carefully who should make decisions in relation to your shareholding in the company. If appropriate you may decide to appoint a separate attorney to be responsible for decisions relating to your shareholding.

In this example you would have three separate LPAs. The first one would relate to your personal assets whilst the second would relate to your role as a director and the final one would relate to your shareholding in the company. Putting separate LPAs in place for your directorship and your shareholding avoids potential conflicts of interest arising.

Who should I appoint as a suitable attorney?

An attorney should be trustworthy, competent and reliable. They should have the skills and ability to carry out the role.

When choosing a business attorney, you should consider:

• Does the individual have the necessary skill, ability and experience to carry out the role? How have they demonstrated this?
• Do any regulations prevent their appointment?
• Are there conflicts of interest between a personal LPA attorney and the business attorney?

What happens if I do not make a business LPA?

If you are unable to make a business decision in the future and have not made a business LPA, it may become necessary to make an application to the Court of Protection for the appointment of a deputy to act on your behalf.  The process can be expensive and there are no guarantees that the Court of Protection will choose someone you would have chosen yourself.  It could also take more than six months before a deputy is appointed, during which time your business may be vulnerable and at risk.

Summary

Whilst no one wants to think that they may not be able to make decisions for themselves or run their business due to a lack of capacity, it is important that this risk is considered as part of your risk management strategy. Putting a business LPA in place will certainly help minimise the risk of the company ceasing to trade due to a lack of management and decision making.

For more information about the issues in the article, please contact Malcolm Emery 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.