In a world where the unimaginable can and does happen — where sudden illness or injury can leave any one of us mentally incapable of dealing with our own affairs on either a temporary or permanent basis— a Lasting Power of Attorney (LPA) can provide you with the peace of mind that your financial interests will be adequately protected if the worst happens.
For many of us, this will be a case of appointing someone we trust, a family member or close friend, to deal with our property and personal finances. However, for those responsible for running a business — operating as either a sole trader, or via a limited company or partnership — an LPA can help to safeguard the survival and success of that business.
What is an LPA and how does this work?
An LPA is where an individual, described as the donor, appoints an attorney, or more than one attorney, to manage any pressing financial affairs on their behalf in the event that the donor is unable to make decisions for themselves, whether this be in the short or long-term.
Commonly, spouses or civil partners, or cohabiting partners, will appoint each other to act in the other’s interests should either one of them become incapable of making decisions due to mental incapacity. However, LPAs are also commonplace when it comes to risk management in the context of a business, providing a financial lifeline in cases of long-term incapacity or, alternatively, protecting the livelihood of the donor during any short-term incapacity.
However, as a business owner, it’s vital that you carefully consider which individual(s) you’d entrust with decisions about your business. In some cases, this may not necessarily be your other half, not least if they lack the know-how to handle these types of decisions. Luckily, it’s entirely possible, and advisable, to consider making two LPAs with different attorneys: one for financial decisions in relation to your business, and the other to cover your personal affairs.
What are the risks of not having an LPA in place?
The making of an LPA should form part of any crisis management plan to help minimise the risks to your business in the event of critical illness. The risks of not having an attorney appointed under an LPA can be many and varied, from being unable to access business accounts, causing problems with cash flow, to incomplete contracts and disgruntled clients.
Even if you already have an LPA in place, but the intention behind this was for your attorney(s) to solely deal with your personal finances, rather than any business matters, you should act immediately. This is because any current appointed attorneys, in the event of your incapacity, would have the legal authority to make business decisions on your behalf.
By putting in place a separate LPA, specifically designed to deal with the survival and success of your business, this will help to guarantee a financial lifeline and/or livelihood to return to. By securing expert legal advice from an LPA specialist, this can also help to guarantee that the needs of both your business and your personal affairs are adequately met where needed.