Business LPA: Why Every Business Owner Needs One

Most business owners have put considerable thought into protecting their personal affairs: Wills, personal Lasting Powers of Attorney, life insurance. But far fewer have considered what would happen to their business if they were suddenly unable to make decisions.

A business LPA is designed to answer that question. It ensures that someone you trust has the legal authority to manage your business if illness, an accident, or a loss of mental capacity means you cannot. Without one, the consequences can be swift and serious, regardless of how well-established your business is.

What is a Business LPA?

A business LPA is a Property and Financial Affairs Lasting Power of Attorney drawn up specifically to cover your business interests. Once registered, your chosen attorney can take on the financial and operational decisions you would ordinarily make yourself.

Depending on how the LPA is drafted, this can include authorising payments, managing tax affairs, dealing with suppliers and banks, and keeping day-to-day operations running. Under the Mental Capacity Act, an attorney can generally do anything the donor could do, unless the LPA specifically restricts this. That flexibility makes a business LPA a powerful document, but it also means careful drafting is essential.

Important limits for company directors

If you are a company director, it is important to understand that an attorney appointed under a Business LPA cannot automatically act as a director in your place. A directorship is a personal legal role, and under standard company Articles (including the Model Articles), the office cannot be delegated to an attorney unless the Articles expressly allow it.

In practice, this means the attorney may be able to deal with shareholder matters or financial decisions relating to the business, but they do not have the legal authority to sit on the board or carry out directors’ duties. This is particularly relevant where the directors and shareholders are different people. An attorney may be able to exercise voting rights attached to shares, but they will not automatically place them on the board or give them director‑level authority.

For many companies, a loss of capacity can therefore create significant difficulty, which is why it is so important to review and, if needed, update the company’s Articles when preparing a Business specific LPA. The Articles should clearly set out what happens if a director loses capacity – for example, whether an alternate director can be appointed, how board decisions will continue to be made, and who is authorised to act in urgent situations.

Some businesses also have a shareholders’ agreement in addition to the Articles. These two documents must be aligned in relation to what happens if a director loses capacity. Any incapacity provisions in the shareholders’ agreement must not conflict with those in the Articles, otherwise the business could face uncertainty or disputes at the very moment it needs clarity.

Sole traders and partnerships

For sole traders, the position is straightforward: without a business LPA, nobody has legal authority to run the business at all. Bank accounts can be frozen, invoices go unpaid, and essential decisions can’t be made.

For partnerships, the partnership agreement should be reviewed to establish whether an attorney can act in place of a partner. Where no agreement exists, the Partnership Act 1890 applies, and under that legislation, a partnership can be dissolved entirely if a partner becomes permanently incapable. This is rarely the outcome anyone intends. A business LPA, prepared alongside a properly drafted partnership agreement, can prevent it.

Choosing your attorney and setting the right boundaries

One of the key advantages of a business LPA is that it can be tailored to your specific circumstances, so your attorney only has the powers you want them to have.

You may want your attorney to be able to act as soon as the LPA is registered, or only once capacity has been lost. You can limit their role to certain areas of the business, or require them to consult particular people before making significant decisions. This level of control means the LPA can be made to fit your business, rather than the other way around.

Whoever you appoint as attorney must act in your best interests, follow the principles of the Mental Capacity Act, and involve you in decisions as far as possible. If your attorney is acting in a professional capacity, as a solicitor or accountant, for example, they are also expected to meet the standards of their profession throughout.

What happens without a business LPA?

A sudden loss of capacity does not wait for convenient timing. Without a business LPA in place, the impact on your business can be immediate.

Banks may freeze accounts. Staff may go unpaid. Contracts may go unfulfilled. Your business could find itself in breach of regulatory obligations simply because no one has the legal authority to act. The process of applying to the Court of Protection for authority to manage someone’s affairs is lengthy and costly, and during that period, your business may have no way to function.

With a Business specific LPA in place, the person you have chosen can make sure the business keeps going. It’s not just a legal document, it’s an essential part of protecting your livelihood, your employees and the value of what you have built.

Plan ahead with FJG

A Business LPA provides continuity at a time when your business would be at its most vulnerable. It ensures that someone you trust can take the reins if you temporarily or permanently can no longer do so. When put in place alongside clear company documents and proper planning, it offers reassurance for you, your partners, your team and the future of the business.

At Fisher Jones Greenwood, our experts provide clear, practical advice to help you put the best possible plans in place for you, your family and your business.