With people seeking greater flexibility and a better work-life balance, small and medium-sized businesses (SMEs) now account for 99 per cent of all private businesses in the UK.
‘Launching and building your new startup is an exciting time and contingency planning is vital. But many entrepreneurs do not consider the longer term and the impact that personal health problems might have on their business,’ says Nigel Miller, a Director in the wills and probate team with Kidd & Spoor Solicitors Limited. ‘It is just as important to plan for health problems of key directors as it is to insure against fire or other business risks.’
A separate lasting power of attorney for your business interests may be one way to ensure that your enterprise is protected if you lose mental capacity.
What would happen if you became seriously ill?
What would happen if you had a serious accident or a debilitating illness which left you unable to carry out your duties within the business?
To some extent this will depend on the type of business structure and whether you have fellow directors or partners. In this case, your business (or your share of the business) would be managed in accordance with any pre-existing agreement between you and your partners or co-directors.
However, startups and family businesses often operate without formal corporate structures and agreements. So, if you are a sole director without a lasting power of attorney, and no other signatories on your business bank account, no one will have authority to deal with your business decisions. Even if your account does have another signatory, their authority is likely to be limited to operation of the bank account only.
Some people may have already made a financial lasting power of attorney, but there may be no distinction between decisions relating to personal finance or the business. Your attorneys would have authority to make decisions on your behalf, but they may not be the best people to deal with your business affairs and their involvement could cause problems. For example, if you have appointed your children to deal with your finances but they are not familiar with your business then their input might be problematic for an experienced business partner or manager.
If you have not made any arrangements, your business partner or a staff member, or a member of your family, could apply to the Court of Protection to deal with your affairs on your behalf. An application to the Court of Protection can take several months, during which time no one would be authorised to run your business. There may be practical steps that staff members can take to help keep the business ticking over, but they may be unable to access your accounts or make certain decisions.
While a successful application to the Court of Protection would result in a deputy being appointed on your behalf, this is unlikely to relate specifically to your business decisions unless this issue is addressed during the application process. Therefore, your deputy may not have the necessary skills to operate your business. It could even prove necessary for them to make further applications as and when specific decisions need to be made which are outside the scope of powers granted to them under the general deputyship order.
Alternatively, an application may be made by someone who is able to manage your business in the way you would, but that person may not be the most appropriate person to deal with your personal finances.
The benefits of a lasting power of attorney for business
Whatever the situation there can be problems, but by making a specific lasting power of attorney for your business decisions you can decide who will step in if you can no longer run your organisation yourself, whether this is a temporary or permanent situation.
In the event of permanent incapacity, you can even include preferences in your lasting power of attorney which direct your attorney to work with a specific accountant or solicitor, or to sell the business on your behalf.
Pre-planning in this way is not only beneficial to you and your business, but it prevents additional stress being placed on your loved ones. Instead of having to worry about your business affairs, they can concentrate on helping you with your personal financial and healthcare concerns.
Having a lasting power of attorney in place for your business decisions also creates greater certainty for customers, suppliers, and others you may work closely with, as they will be able to continue engaging with your business without major disruptions.
Creating your business lasting power of attorney
The process for a business lasting power of attorney is the same as one for your personal financial affairs, and you will need to appoint someone who you trust.
For most people, it is unlikely that you will want your business attorney to have access to your personal finances, so it is crucial to make sure that your authority appropriately limits the scope of your attorney’s decision-making.
You will, therefore, need to make two lasting powers of attorney – one which specifically relates to your personal finances only and another which specifically relates to your business affairs. Appropriate drafting is key, and your solicitor can help with this.
Careful drafting is also key in ensuring that your attorney continues to run the business in your best interests. Including preferences and instructions in your lasting power of attorney will help to guide your attorney so they can confidently make decisions on your behalf knowing that you would approve. Preferences and instructions do have to be considered carefully, as they must be both legal and workable. If you are unsure about what guidelines you may include, seeking advice early can prevent delays and additional costs when it comes to registering your lasting power of attorney.
If you have a business partner or co-director, you also need to consider their position. You should always discuss any proposed lasting power of attorney for the business with them, as well as ensuring that the arrangements you make are not in opposition to any existing agreement in place.
How our solicitors can help
Obtaining advice from a solicitor and having your lasting power of attorney professionally drafted will ensure that it adequately protects all your business interests.
For further information, please contact Nigel Miller or Noel Dilks in the wills and probate team on 0191 2970011 or email email@example.com or firstname.lastname@example.org.