None of us knows what the future holds. Should you lose mental capacity and become unable to make decisions, permanently or temporarily, that could cause practical problems with day-to-day decision making, both in your business and at home.

Most partnership agreements or articles of association and shareholders' agreements cover what should happen if a director lacks capacity for whatever reason. However, making the necessary arrangements to appoint a substitute partner/director/shareholder can take time and prove disruptive to running the business.

If the corporate governance documents do not cover this or there is a dispute as to how they should be applied, those most affected by your lack of capacity may have to apply to the Court of Protection for a deputyship order. This can be costly and you would have no control over who the Deputy was.

By having a lasting power of attorney (LPA) in place, you can choose in advance who you would want to make decisions on your behalf in certain circumstances.

What is an LPA?

There are two different types of LPA: finance and property, and health and welfare.

Finance and property LPAs cover your financial decisions, including dealing with your bank account, investments and selling or purchasing property. They can also cover your business interests in your capacity as a shareholder. However, it's important to note that the rights and responsibilities of being an officer of a company (director or company secretary), or of a partner in a partnership are personal to you. They cannot be delegated in this way, which is why it is so important that the corporate governance documents spell this out.

You can have more than one LPA, appointing different attorneys for different decisions. Depending on your circumstances, you may want one LPA to deal with your personal finances and another for your business interests. The different attorneys can have varying degrees of authority and you can include instructions and restrictions on a person's authority, to protect your business interests.

What about my duties as a director or partner in a business?

A director's or partner's duties are personal and cannot be delegated under an LPA. Typically, the articles of association or partnership agreement provide for an individual to be removed from office in a private limited company, if they can no longer perform their duties due to physical or mental incapacity.

When do LPAs become active?

One of the key differences between the finance and property LPA and the health and care LPA is when they come into force. You can choose to make the finance and property LPA effective as soon as it's registered. A health and welfare LPA only becomes effective when mental capacity is lost.

Who are my attorneys?

Attorneys are the people you choose to appoint under an LPA. They effectively step into your shoes, so it's important to consider carefully who would be best suited to this role. Within your business, this might be someone completely different to the person you would trust to run your home and personal finances.

Whatever capacity they act in, your attorneys must abide by the Mental Capacity Act 2005 Code of Conduct and act in your interests. It's possible to give attorneys varying degrees of authority and to include instructions and restrictions on their authority, as you see fit.

Can I set up my LPA myself?

You can put an LPA in place without a lawyer. The link to the relevant website is here. If you decide to do this for yourself, please read the guidance notes carefully, because once an LPA is in place it's difficult to make changes.

How we can help

Most business owners need help with setting up an LPA. We will check that your corporate governance documents (articles, shareholders agreements, partnership agreements etc) are all consistent with the arrangements you are putting in place. We will also help you create a succession plan both for your business and at home, and make sure that these key details are aligned.

Originally published by Taylor Vinters UK, October 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.