Why a DIY business LPA would cost your company dearly

Rebecca Kashti of Hedges Law explains why you need a business Lasting Power of Attorney
Rebecca Kashti
Rebecca Kashti

You would think, given the blood, sweat and tears most business owners pour into their companies that they would want to do everything they can to protect them.

But, shockingly, many companies have no legal documentation in place to ensure that, should the business owner - or the ultimate decision maker - lose mental capacity, someone suitable can make decisions on their behalf.

This is where a business Lasting Power of Attorney is needed. It’s a crucial legal document and without it, your business could literally stop should the worst happen. It is critical to business continuity. Despite this, only 5 million of the 67 million UK population have an LPA and very few of these will be business LPAs.

Not having this legal document in place means, should you be unable to make decisions, that company bank accounts are likely to be frozen and every day decisions cannot be made. Staff could go unpaid, and directors could be put at risk of regulatory breaches. We are talking about severe disruption that could take years for your business to recover from.

Whether it’s illness or an accident leaving you as a business owner too unwell to make decisions, an LPA grants the attorney the power to manage the company operations and finances, protecting the business and its employees during uncertain times.

Like Wills, it is possible to arrange your own LPA without legal guidance. You can go online and fill in the form yourself. However, the devil is in the detail and unless it is properly registered and scoped out accurately to ensure that the company, and your staff, are protected, then it is effectively worthless.

So, what could go wrong if you do decide to ‘do it yourself?’ Firstly, you are probably unfamiliar with the form itself. It is common for people to make mistakes on forms like this. Maybe you leave a particular box unticked or perhaps you fail to get a signature witnessed properly – something that I see often. This will result in the Office of the Public Guardian (OPG) rejecting the form and then you are back to square one. For the LPA to be legally binding, it needs to be accepted and registered by the OPG.

Furthermore, it’s important that you fully understand the power that you will be giving to your attorneys – something you are unlikely to appreciate without experience in this area. Without this knowledge it’s quite possible your choice of attorneys will be entirely inappropriate.

Perhaps you decide to appoint your closest relative, let’s say, your brother, who lives in Australia. But how practical is that? Would he be able to make decisions from there, would he have to travel? What does he know about your business?

Real consideration should be made as to who you are appointing to oversee your business. Have they previously been involved, and is their knowledge of the business up to date? If not, then you could be asking for trouble. Conflicts over decisions with the other members of the board are very likely if they don't know enough about your business.

The appointed person will need to make critical business decisions. They must possess the right skill sets. Without that in depth knowledge of the power that you are granting your attorney, or the ability to properly scope out the business LPA then you might not be appointing a person who is truly up to the job. This means that your business will be left in the hands of a person who is simply not capable.

The scoping of the business LPA is important if you want to really future proof your business. You will need to consider what’s important to you, what’s vital for your business to continue, and understand how to ensure that you are granting your attorney enough power to keep the business going.

What’s important to you and your business now, might not be important in the future. If you inadvertently put too many restrictions on the decisions that your attorney can make, then it could become impossible for them to do their job. They may end up needing to go to court in order to make a critical decision, causing delays that could negatively impact your business.

There are many considerations to be made that without relevant knowledge you might not even think of. For example, what do you want to happen if a replacement attorney is required? What restrictions, instructions, and guidance needs to be in there? What clauses should be included? Without that expertise you are unlikely to get all of these things right. As they say, you don’t know what you don't know.

There may be documents that you already have in place that cover the continuity of the business, such as a partnership agreement or Articles of Association. If you have standard Articles in place then it could be the case that, if there is written opinion from a registered medical practitioner saying that a person with directorship is physically or mentally incapable of acting as a director, then that directorship could be ceased. You will need to ensure your business LPA dovetails with your other corporate documents, or if they conflict. That is not an easy task.

You’ll need to do a thorough inspection of the company's governing documents, and be aware of any legal pitfalls to look out for when drafting a business LPA. You will want to ensure that it is watertight from a legal perspective and covers all eventualities. It is well worth investing in getting this right, to protect your business, and all the people who rely on its success into the future.

Written by
May 17, 2023