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How a business lasting power of attorney works

  • Describe the benefits of having a business Lasting Power of Attorney
  • Identify the differences between and LPA and conventional PoA
  • Describe who would make a good choice for a business LPA

The court could be asked to make an emergency order but this can be stressful and costly and without guaranteed success.

It is, bluntly, unlikely there will still be a business to run by the time a deputy has been appointed.

As a bare minimum any business owner, director, partnership member or shareholder with voting rights should have a financial LPA in place. Ideally they should have a business LPA.

Characteristics of a business LPA

A business LPA is specific to an individual’s role within a particular business.

A businessperson with interests in multiple businesses would usually make separate LPAs for each of those interests.

The appointment of suitable attorneys (see below) is vital but so are the instructions that govern the extent of their powers and the way they must be exercised.

A business LPA is not an “off-the-shelf” document.

The LPA can include non-binding preferences to help attorneys exercise their powers in a way that meets the donor’s wishes.

It should also include legally binding instructions setting out the business decisions with which attorneys are allowed to deal, and those areas in which they do not have authority to act.

Attorneys are appointed to make management decisions on behalf of the donor, not to take over their job.

The exact scope of the attorney’s role will be specific to the donor’s business.

The attorney could instruct existing employees to perform key tasks or employ new people if there is a skills shortage.

The attorney would be responsible for complying with any professional regulatory requirements and may need to be noted as a person with significant control on the Companies House records for the business.

Interaction with company law

Lasting powers of attorney are governed by the Mental Capacity Act 2005 while companies are governed by the Companies Act 2006. The two do not always co-exist harmoniously.

Companies might, for example, have articles of association that mandate the removal of directors who lack capacity, or that do not allow for the appointment of “proxy” directors (including attorneys).

Similar situations can occur with partnership agreements.

Such clauses are likely to be discriminatory under current equalities legislation and the company’s ability to remove a director could be complicated. It is important, therefore, that a company or partnership’s governing documents are reviewed and, if necessary, amended at the time a business LPA is drafted.

Even without an LPA any attempt to unseat an incapacitated director or partner would be likely to be open to legal challenge under discrimination legislation.