You've probably heard of a "Power of Attorney". It's "a legal document that allows someone to make decisions for you, or act on your behalf, if you're no longer able to or if you no longer want to make your own decisions" (Age UK).
As the UK population ages, these are becoming more and more popular, with
more than 5 million registered in recent years.
Less commonly known is
commercial power of attorney. This, as the name suggests, covers business rather than personal affairs.
Before we take a look at commercial power of attorney and how it could benefit you, let's quickly recap on non-commercial powers of attorney.
What are standard powers of attorney?
An "ordinary" power of attorney (PoA) becomes active when you, the "donor", have mental capacity but are unable to take care of your personal affairs. This could be because you're in hospital, or on holiday, or if you struggle to get to the bank or post office for whatever reason.
In this case, you appoint an "attorney" to make financial decisions for you. These can be limited – for instance, your attorney could be given responsibility for bank transactions, but not home affairs.
By contrast, lasting power of attorney (LPA), is drawn up to prepare for a person's retirement if they lose mental or physical capacity. These are more wide-ranging than ordinary powers of attorney as they cover health and care, as well as finances. As with ordinary PoAs, a trusted person is appointed to be your attorney and act on your behalf.
LPAs were introduced in 2007 as part of the
Mental Capacity Act 2005. They replaced enduring powers of attorney (EPAs), which remain valid.
How about a commercial power of attorney?
Commercial powers of attorney are similar to personal ones insofar as they nominate an individual to take over the handling of affairs in the event of mental or physical incapacity.
A business LPA (lasting power of attorney) exists specifically to ensure that a business can continue running if its leader comes to lack mental or physical capacity, or if they plan to spend significant time abroad. It's limited to business affairs, so where an ordinary LPA would likely authorise the attorney to conduct personal bank transactions on behalf of the donor, a business LPA restricts this to business accounts.
The attorney effectively replaces the donor as head of the company, giving them rights and permissions to sign key documents and handle business affairs.
Why might
I
need a business LPA?
The benefits of a personal LPA are relatively clear. But in the business world, contingency planning for ill health and incapacity is often overlooked.
It's often assumed that a business owner's spouse, partner or children can automatically take on the responsibilities of the business and start making decisions. In fact, this isn't a legal right, and arrangements for attorneyship have to be made.
Moreover, the person closest to you who has your trust – your spouse or partner, close friend, or family member – might not necessarily be the best person to take over your business affairs. While this trusted individual could be ideal for conducting your personal affairs, they are likely to lack the expertise and professional qualifications required for the running of your business.
You need someone capable of doing the daily tasks that keep a business going, be that paying staff, suppliers and creditors, managing company accounts, signing cheques or dealing with tax.
Commercial power of attorney gives you the security and peace of mind of knowing that all these activities will continue uninterrupted in your absence. Not only does this minimise disturbance for your staff, but it also reassures banks and creditors that they'll be paid on time – and makes sure that insurances and contracts remain valid.
A business LPA is a concrete step you can take to ensure the smooth running of your business in
unforeseen circumstances.
What if I don't have a business LPA?
Let's say you decide that a business LPA isn't for you. What happens if you become unable to run your business?
Well, in this eventuality, someone must apply to the Court of Protection for a "deputyship order". This assigns your business a deputy to make decisions on your behalf.
So what's the difference? The main one is that the process of applying for a deputy is both costlier and more time-consuming than drawing up an LPA. It can take over six months, during which time your company is essentially rudderless. On top of that, you don't have the certainty and reassurance of nominating someone to be your attorney – the Court of Protection won't necessarily make the same choice you would.
Registering a business LPA, by comparison, is cheaper, more efficient, and gives you peace of mind in knowing that you've personally selected your caretaker.
Can I have one LPA to cover both business and personal affairs?
The simple answer is "yes". But it might not be the wisest decision.
As we mentioned above, the person best suited to looking after your personal affairs may not be qualified to run your business. Moreover, if one person is managing both sides it can lead to a conflict of interest.
You
can
make an LPA appointing separate attorneys for personal and business affairs, but this can create a sense of muddle and ambiguity about the scope of each attorney.
It's much simpler to create two – one for personal affairs and one for business. Of course, each needs to be crystal clear about the powers it's conferring so the two attorneys don't end up getting in each other's way.
So there you have it, a quick overview of commercial power of attorney.
Here at Milners, we solve legal problems so you can focus on business. If you're looking for exceptional – and affordable – legal advice from expert corporate solicitors, then don't hesitate to
contact us for a free consultation.
Pontefract Office
9A High Street
Upton, Pontefract
West Yorkshire
WF9 1HR
Darlington Office
Close Thornton Solicitors
31 Houndgate
Darlington
DL1 5RH
Authorised and regulated by the Solicitors Regulation Authority – Milners, SRA # 52317 | VAT number: 170144301
All Rights Reserved | Milners Solicitors
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
Harrogate Office
11A Princes Square
Harrogate
North Yorkshire
HG1 1ND
01423 530 103
Darlington Office
Close Thornton Solicitors
31 Houndgate
Darlington
DL1 5RH
01325 466461
Pontefract Office
9A High Street
Upton, Pontefract
West Yorkshire
WF9 1HR
01977 644 864
Authorised and regulated by the SRA, SRA ID 52317
Get tips from our business and personal law legal experts. Delivered to your inbox each week.