Susan Maxey, legal director at WBD, has extensive experience of advising individuals and trustees owning private company shares, and has been recognised in the Chambers High Net Worth Guide 2018. Here, the private client specialist reveals what to consider when making a business lasting power of attorney.
The benefits of making a lasting power of attorney (LPA) to appoint someone to make decisions about your personal financial affairs, should you be unable to make them yourself, are widely known. Failure to do so requires an application to be made to the Court of Protection seeking the appointment of a deputy, a costly process in terms of both time and money.
In making an LPA, it is crucial to choose your attorneys carefully, since they must act in your best interests at all times. While a family member or friend might be best placed to make decisions concerning your personal financial affairs, would the same be true of your business interests? If you have an interest in a business, whether as a manager or owner, it would be prudent to appoint someone who is familiar with the business and who would be able to ensure continuity in its day- to-day running. This can be achieved by making a business lasting power of attorney (BLPA).
BLPAs play a vital role in reducing business risk. Imagine what the future of your business would be if there is no one with the authority to pay staff or suppliers, or where bank accounts held in the joint names of business partners or directors are frozen due to the incapacity of one party. This is likely to significantly impede the daily running of the business and put its future at risk.
In making a BLPA, consider the nature of the business and the types of decisions that will need to be made. If you are a sole trader, you will need to be satisfied that your attorney can continue to run your business throughout your incapacity or until alternative arrangements can be made. As a shareholder in a private company, your attorney will have to decide whether it is in your best interests for the shares to be sold or retained and if they are retained, your attorney will have the authority to exercise any voting rights on your behalf.
The position is less straightforward if you are a director. The appointment of director is a personal one and may only be discharged by the person holding the office, who has an obligation to act in the best interests of the company at all times. This may lead to a conflict of interest since an attorney must act in your, rather than the company’s, best interests. In the case of temporary incapacity, the role of a business attorney will be to keep the company informed of the extent of the incapacity and to ensure that your personal financial position in the business is protected while the incapacity continues. Permanent incapacity may – depending on the provisions of the company’s constitutional document – result in your removal from office, although the company would need to ensure that any action taken is not discriminatory. Again, the role of a business attorney in this situation would be to address any financial consequences of your removal from office.
Whatever your situation, making a BLPA enables you to appoint someone with the necessary skills to ensure the continuity of your business interests in the event of your incapacity and should be a key part of your risk management.
This article first appeared in the North East Times.