Your business partner is suddenly unable to make decisions.
A serious illness. An accident. A stroke. A period of hospital treatment. Whatever the cause, the effect can be immediate. Bills still need paying, staff need answers, suppliers want instructions and important contracts may be waiting for a signature.
But who has the legal authority to act?
Many small-business owners assume that their spouse, business partner or adult child can simply step in. That assumption can leave a business exposed at exactly the moment it needs stability.
If nothing changes, the pressure builds quickly. In three months, the business may already be struggling to pay bills or suppliers because nobody has the authority to act. In six months, contracts may be slipping away, employees may be leaving and the bank may be demanding formal authority before it will speak to anyone. In twelve months, the business could be worth a fraction of what it was, or worse, be lost entirely, while your family is forced into a costly Court of Protection application just to try to regain control.
That is the risk of delay.
A carefully prepared commercial Lasting Powers of Attorney (LPA), put in place while capacity is not in doubt, is a simple piece of planning that can protect everything you have built. It can give someone you trust authority to deal with your property and financial affairs, including appropriate business matters, if you cannot manage them yourself.
It needs to be planned properly, though. An LPA does not automatically make somebody a director, and it does not override your company’s articles of association or partnership agreement.
The immediate problem: the business cannot wait
Imagine that you and your business partner run a building company. Your partner manages the finances, deals with the bank and approves payments to suppliers. You manage operations and client relationships.
Your partner then loses mental capacity following an unexpected illness.
You may know exactly what needs to happen, but knowing what to do is not the same as having legal authority to do it. You could face difficulty accessing accounts, authorising payments or dealing with important financial decisions.
Employees may be anxious. Suppliers may stop extending credit. A lender may require formal authority before discussing the business finances. Meanwhile, the business continues to incur costs.
This is not simply an inconvenience. It can threaten jobs, contracts and the value of something you have spent years building.
As The Gazette explains, business owners should consider what would happen if they were unable to make decisions about matters such as paying salaries, servicing a business loan or authorising business bills.
A commercial LPA is usually a property and financial affairs LPA
There is no separate statutory document called a “commercial LPA”. In practice, the term usually refers to a property and financial affairs LPA drafted with the donor’s business interests in mind.
The person making the LPA is called the donor. The person appointed to act is called the attorney.
The document may allow your attorney to deal with matters such as:
- Business-related bank accounts and payments
- Tax and other financial obligations
- Property used in the business
- Investments and business assets
- Payments to employees and suppliers
- Certain contracts and financial arrangements, where the authority is legally appropriate
The precise scope depends on your business structure, the wording of the LPA and any restrictions or instructions included in it.
A property and financial affairs attorney must act in your best interests, keep proper records and avoid using your money or property for their own benefit. The GOV.UK guidance confirms that attorneys can make decisions about money, tax, bills, bank accounts, property and investments.
This is why choosing the right attorney matters so much.
Your business partner may not be the right attorney
Your first thought may be to appoint your business partner. That can be sensible, particularly where they understand the business and already share responsibility for running it.
However, you should not make the decision automatically.
Ask yourself:
- Does this person understand the financial side of the business?
- Can they act calmly under pressure?
- Do they have enough time to take on the responsibility?
- Could their personal interests conflict with yours?
- Would they be able to work effectively with your family and professional advisers?
- What happens if they are unavailable too?
You may decide to appoint one attorney for business matters and a different attorney for your personal finances. That can help keep business and family decisions separate, but the wording must be carefully coordinated.
Poorly drafted instructions can create uncertainty. Different attorneys may disagree about whether a particular asset or account is personal or business-related. That uncertainty can lead to delay, conflict and potentially expensive litigation.
This is one reason to speak to lasting power of attorney solicitors who understand both private client work and business structures.
A sole trader, partnership and limited company are not the same
The right approach depends heavily on how your business operates.
If you are a sole trader
A sole trader and their business are not separate legal persons. Business money, contracts and assets are generally connected to you personally.
A property and financial affairs LPA can therefore be particularly important. It may help your attorney deal with business finances and practical financial responsibilities if you lose capacity.
You should still make the document specific enough to avoid doubt about the business matters your attorney is expected to handle.
If you are in a partnership
Start by checking your partnership agreement. It may contain provisions dealing with incapacity, decision-making or the departure of a partner.
An LPA should not conflict with that agreement. Your attorney may be able to deal with your personal financial rights, such as capital or distributions, but that does not necessarily mean they can take over management of the partnership.
A partnership solicitor should review the agreement alongside the proposed LPA so that the arrangements work together.
If you are a director or shareholder of a limited company
This is where misunderstandings are particularly common.
An LPA does not make your attorney a company director. The office of director is governed by company law and the company’s articles of association. Your attorney cannot simply step into your role as director because they have been appointed under an LPA.
Your shares are a different matter. An attorney may be able to deal with your shareholding as part of your property and financial affairs, subject to the LPA’s terms and the company’s constitutional documents.
You should also check what your articles say about a director losing mental capacity. Some articles may provide for the termination of a director’s appointment in those circumstances. If you are the sole director of a small company, the consequences may be particularly serious because there may be nobody else with authority to keep the company moving.
A commercial law solicitor can help you examine the relationship between your LPA, articles of association, shareholder position and any shareholder agreement.
A paper LPA must be completed correctly
You must have mental capacity when you make and sign the LPA. If you wait until capacity is in doubt, the opportunity to put your preferred arrangements in place may already have gone.
The paper process also needs care. The donor, attorneys, witnesses and certificate provider must sign the same original document. Signatures must be completed in the correct order, and errors can result in rejection or delay.
The Office of the Public Guardian’s guidance warns that mistakes may mean the LPA is delayed, is not legally valid or cannot be registered.
As the official guidance puts it:
“It’s important that the LPA forms are filled out correctly.”
The LPA must also be registered before your attorney can use it. GOV.UK confirms that an attorney cannot make decisions under the document until registration has taken place.
Do not leave registration until there is an emergency. The registration process takes time, and the business may need help before the document is ready to use.
What happens if you do nothing?
If you lose capacity without a suitable LPA, your family or colleagues do not automatically gain authority to manage your affairs.
They may need to apply to the Court of Protection for the appointment of a deputy. That can involve a lengthy legal process, professional costs and uncertainty about who will ultimately be appointed.
The Court may not choose the person you would have selected. In the meantime, important business decisions may be delayed. You could be hit with a bill at a time when the business is already under pressure.
That is a heavy burden to place on your family, business partner and employees when a straightforward piece of forward planning may have reduced the risk.
Your next step should be simple
You do not need to solve every issue in one afternoon.
Start by gathering:
- Your company’s articles of association
- Any shareholder or partnership agreement
- Details of business bank accounts and major assets
- A list of decisions only you or your partner currently make
- The names of people you may trust as attorneys
- Any existing personal LPA
Then arrange a conversation with an lpa solicitor who can ask the right questions and help design an arrangement suited to your business.
At Tyto Law Solicitors, we advise individuals and small-business owners across England and Wales. We can help you consider the practical effect of a paper property and financial affairs LPA alongside your business documents.
We offer appointments at your home, office or online, including evenings and weekends. Our offices are in Crowle, North Lincolnshire, and Lincoln, so you can speak with a solicitor Crowle or solicitor Lincoln without making the process more difficult than it needs to be.
The initial consultation fee is a fixed £175 for relevant matters. This fee does not apply to Wills, LPAs or Probate.
A commercial LPA will not prevent every business crisis. It can, however, give the right person a lawful route to deal with important financial matters when you cannot.
That is worth planning for now: while you still can.
About Oliver Saxon
Oliver Saxon : Principal Solicitor
Oliver Saxon is the Principal Solicitor at Tyto Law Solicitors. He provides clear, practical legal advice to individuals and small-business owners, helping clients understand their options and take action before uncertainty becomes a costly dispute.
Tyto Law Solicitors has offices in Crowle, North Lincolnshire, and Lincoln. To discuss a commercial LPA, contact the team at Tyto Law Solicitors or read more about Lasting Powers of Attorney.