The Problem

When people think about getting their business affairs in order, they usually focus on what happens if they die - making a will and taking out life insurance. They often overlook what might happen if they were alive but incapacitated. If a business owner is unable to work due to ill health, immobility or mental incapacity the effect on the business can be devastating and may result in the business being either "frozen" or unnecessary borrowing being incurred – neither of which is good for cash flow.

The Solution

The Mental Capacity Act 2005 introduced documents known as Lasting Powers of Attorney (LPA) in October 2007. An LPA is a legal authority which enables an individual to act as someone else's 'Attorney' to make decisions on their behalf. It can be signed any time whilst the person granting the power (the Donor) has mental capacity but must be registered with the Office of the Public Guardian before it can be used by the Attorney.

A 'Property and Affairs' LPA allows an Attorney to deal with business interests, such as bank accounts, property and shares – for example, if a share sale is about to complete an Attorney could sign the Share Transfer on the Donor's behalf. Alternatively, if a cheque or mandate required two signatures, a signed and registered LPA would allow trading to continue on an Attorney's signature if one of the signatories could not act. It would also cover situations where, for example, a shareholder is on holiday and cannot easily be contacted in order to sign papers.

Once registered, the LPA can be used whether the individual has mental capacity or not. This is where the LPA differs from an ordinary Power of Attorney which is revoked when you lose capacity. It is therefore the safest form of protection because it covers not only planned absence but also situations where you may be immobile but still with full capacity, as well as where you are mentally incapable.

An LPA should be a primary consideration for a business owner or shareholder. If they become incapacitated for any reason, then action now could avoid problems in the future.

For further information please email becca.haddon@howespercival.com