For business owners, planning for the unexpected is essential. While many people associate a Lasting Power of Attorney (LPA) with personal matters, such as managing a home or savings, it is equally important to consider how your business affairs would be managed if you were no longer able to make decisions yourself.
A Lasting Power of Attorney can provide clarity, continuity and protection if you lose capacity, whether temporarily or permanently. For sole traders, company directors and partners, having the right legal documents in place can mean the difference between a business continuing to operate or being forced to stop.
This guide explains how Lasting Powers of Attorney work for business owners, why they matter, and how AFG Law’s private client solicitors can help.
What is a Lasting Power of Attorney?
A Lasting Power of Attorney is a legal document that allows you to appoint one or more people (known as attorneys) to make decisions on your behalf if you become unable to do so.
There are two main types of LPA:
- LPA for property and financial affairs
- Health and welfare LPA
For business owners, the LPA for property and financial affairs is usually the most relevant, as it can cover both personal finances and certain aspects of business decision-making.
An LPA must be registered with the Office of the Public Guardian before it can be used.
Why business owners need a Lasting Power of Attorney
Many business owners assume that their business partner, fellow directors or senior staff would automatically be able to step in if something happened to them. In reality, this is often not the case.
If you lose mental capacity without an LPA in place:
- Bank accounts may be frozen
- Contracts may not be signed
- Employees may not be paid
- The business may be unable to trade
In those circumstances, family members or colleagues may have no authority to act, and an application to the court may be required.
What happens if there is no Lasting Power of Attorney?
If no LPA exists and you lose capacity, decisions about your financial affairs and business interests may need to be made by a deputy appointed by the Court of Protection.
This process can be:
- Time-consuming
- Expensive
- Public
- Restrictive
The court will decide who is appointed and what powers they have, which may not reflect your wishes or the needs of the business. Having an LPA in place avoids the need for court involvement and ensures continuity.
Mental capacity and business decision-making
Mental capacity means the ability to understand, retain and weigh information and communicate decisions. Capacity can be lost suddenly, for example due to an accident or stroke, or gradually as a result of illness.
An LPA only takes effect when required and allows attorneys to make decisions when you are unable to do so yourself. Importantly, it can also be used (with your consent) while you still have capacity, making it useful for managing day to day matters if you are unwell or unavailable.
Lasting Power of Attorney for property and financial affairs
An LPA for property and financial affairs can cover a wide range of responsibilities, including:
- Operating a business account
- Paying suppliers and staff
- Managing tax and VAT obligations
- Dealing with commercial property
- Handling personal finances
For business owners, this type of LPA can be drafted to include specific authority to deal with business affairs, ensuring that attorneys can act decisively when needed.
Business Lasting Power of Attorney vs Personal Lasting Power of Attorney
Some business owners benefit from having a separate business LPA, distinct from their personal arrangements. This allows you to appoint attorneys with appropriate commercial experience to deal with the business, while family members may handle personal matters.
A well-drafted business Lasting Power of Attorney can:
- Limit attorneys’ powers to business matters only
- Specify how decisions should be made
- Reflect the structure of the business
AFG Law’s private client solicitors work closely with commercial colleagues where needed to ensure the Lasting Power of Attorney aligns with the business structure.
Sole traders and Lasting Powers of Attorney
If you are a sole trader, there is no legal distinction between you and your business. This means that if you lose capacity, the business cannot operate without authority being given to someone else.
A Lasting Power of Attorney is particularly important for sole traders, as it allows attorneys to:
- Continue trading
- Manage invoices and payments
- Deal with customers and suppliers
- Protect the value of the business
Without an LPA, a sole trader’s business may effectively cease trading until a court order is obtained.
Partnerships and business owners
If you operate as part of a partnership, it is essential to consider how a Lasting Power of Attorney interacts with the partnership agreement.
Some agreements include provisions dealing with incapacity, but many do not give partners authority to manage another partner’s financial interests. An LPA can fill this gap and ensure that your interests are protected.
It is important that any LPA is consistent with the partnership agreement to avoid conflict or uncertainty.
Appointing Attorneys
Choosing the right people when appointing attorneys is critical. For business owners, attorneys should be:
- Trustworthy
- Financially competent
- Able to act under pressure
- Familiar with the business
You can appoint more than one attorney and decide whether they act jointly or jointly and severally. You may also include replacement attorneys in case your first choice is unable to act.
What decisions can attorneys make?
An LPA can authorise attorneys to make a wide range of financial affairs decisions, including:
- Managing bank accounts
- Signing contracts
- Paying debts
- Making investments
- Dealing with HMRC
With careful drafting, attorneys can be given clear authority to handle business affairs while remaining subject to safeguards.
Registration with the Office of the Public Guardian
An LPA must be registered with the Office of the Public Guardian before it can be used. This process ensures that the document is valid and that safeguards are in place.
If an LPA is not registered in advance and capacity is lost, it may be too late to register it, resulting in the need for an application to the court instead.
The role of the Court of Protection
The Court of Protection oversees decisions made on behalf of individuals who lack capacity. While it provides important safeguards, court involvement is generally something business owners wish to avoid due to delay and cost.
A Lasting Power of Attorney for business owners reduces the likelihood of court involvement and gives you control over who acts and how.
Practical benefits of a Lasting Power of Attorney for business owners
Putting an LPA in place can:
- Protect the continuity of the business
- Reduce disruption and uncertainty
- Avoid costly court applications
- Ensure decisions are made by people you trust
- Provide reassurance to lenders and stakeholders
It is an important part of long-term business and personal planning.
How AFG Law can help
For business owners, a Lasting Power of Attorney is a vital safeguard for the future of the business. Whether you are a sole trader, partner or company director, having the right LPA in place ensures that trusted individuals can make decisions on your behalf if you are unable to do so.
Taking advice early allows you to put robust arrangements in place and avoid unnecessary risk for your business, your family and your colleagues.
AFG Law’s private client solicitors advise business owners on putting effective and tailored LPAs in place. We take the time to understand your personal circumstances and the structure of your business to ensure the document meets your needs.
We can assist with:
- Advising on the right type of LPA
- Drafting LPAs that cover business and personal matters
- Coordinating with partnership or company arrangements
- Registering the LPA with the Office of the Public Guardian
Our aim is to provide clear, practical advice that protects both you and your business.
For professional guidance on all matters related to Lasting Power of Attorney, please get in touch with our team today via email at PrivateClientDept@afglaw.co.uk or speak to one of our experts on the phone at 01204 920109.