A general property and financial affairs LPA allows the donor’s attorneys authority over all of the donor’s property and finances. This ordinarily would include any interest that the donor has in a business.
However, the donor’s chosen attorneys may not have the relevant skills or knowledge to deal with their business affairs and it may be more advisable to have different attorneys act for the donor’s business. It isn’t possible in one LPA to appoint attorneys and state that some attorneys would only act for business whilst others would act for personal affairs. To do this, the donor would need to create a separate business LPA appointing different attorneys who would have the relevant skills to act for the business.
What is a business LPA?
A business LPA, also sometimes known as a commercial LPA, is a property and affairs LPA restricted to only give the attorneys authority over a certain business of the donor. It will allow the attorneys to make decisions regarding that business in the event that the donor loses capacity, or alternatively to make decisions whilst the donor still has capacity.
To make a business LPA, the donor would create multiple property and financial affairs LPAs. One would include an instruction that limits their attorneys’ authority to their personal affairs only. They would then have other LPAs that include instructions limiting those attorneys’ authority to only make decisions relating to that business.
We strongly recommend that a business LPA is created for each business owned by the donor. An LPA restricted to business affairs in general is likely to be considered too vague.
Why make business LPAs?
Since the Mental Health (Discrimination) Act 2013 was implemented, it is not possible for a director to be removed by the court if they have mental health concerns, including if they have lost mental capacity, as this would be seen as discrimination. By creating a business LPA in advance, directors are able to ensure that other people can continue to make decisions on their behalf for the business after they have lost mental capacity.
A person without capacity cannot enter into lawful contracts. Sole traders will no longer be able to sell goods or services. For partnerships or companies, this may destabilise the running of the business.
If a person who is a signatory to a business account loses capacity and does not have an LPA in place, the bank may freeze that account, which increases the risk that loans or overdrafts could be recalled. An application would need to be to made to the Court of Protection to remove that person as a signatory as otherwise it would not be possible to remove that person without their permission.
Along with the protection of the business from loss of capacity, there are other benefits to using a business LPA. It ensures that decisions regarding the business can still be made if the donor is on holiday, the donor is ill or off on long term sick or the donor wishes to semi-retire.
The creation of the business LPA should be treated as a business expense and therefore should be payable from the business rather than a personal expense of the donor.
Considerations when making business LPAs?
Any relevant business documentation would need to be consulted. For example, any partnership agreement (for a partnership) or the articles of association (for a limited company) should be looked at to ensure they do not contain any terms that would prevent an attorney from acting. WillPack will check any documentation when drafting business LPAs and may recommend that amendments are made.
The appointment of attorneys needs to be carefully considered. The appointment needs to be based not only on trust, but also if they are capable of dealing with the business. For example, the donor will need to consider if their chosen person is familiar with the business, or at least the market of the business, along with sharing the same business ideas as the donor to ensure they act in the best interest of the donor.
The attorneys may not necessarily need to understand all of the day-to-day work activities of the business. Using their authority, the attorneys may reassign the donor’s day-to-day work to another person but retain the managerial functions.
A business LPA can be restricted to business affairs in general or alternatively it may be clearer in some circumstances to refer to the businesses specifically by name.