Are you prepared? Your business/your wishes in ill health

You have worked hard to create a successful business and are now taking prudent steps to look at how best to protect and promote your wishes for your business, to the future.

You understand it is never too early to look at succession, but did you realise that you need to look under the bonnet not only for how the asset should pass at point of death but safeguards that should be put in place for those lifetime curveballs too.

We accept the fragility of life, but when you are running a business, you have greater responsibilities to consider, not merely just for yourself. What if you are alive but become mentally incapacitated? Who is now going to be able to see to matters should you lack mental capacity? You may have responsibilities not only to yourself and loved ones but also to employees and clients. There is a significant detrimental impact that results from somebody losing mental capacity. This could be temporary but may be long-standing and permanent. What would happen to all if you were unable to make a decision?

In the absence of you holding a registered Lasting Power of Attorney (‘LPA’) for property and financial affairs (previously an Enduring Power of Attorney) there would be need for an application to be made to the Court of Protection for a Deputyship Order. Such application is costly, time-consuming and cumbersome and could be inherently risky to your business.

Should you have no LPA, this omission is likely to a grave concern for a business owner, partner, shareholder due potential catastrophic damage it could do to the business as it may lead to a standstill while the directors/partners and/or shareholders pursue the removal or replacement of the incapacitated individual. These issues can cause great damage, particularly to a small business where there may only be one sole shareholder and director, as there will be no alternative but to seek a Deputyship Order. An application to the Court of Protection would be the only way forward, which is fraught with costs and administratively challenging.

To avoid the risk of your business being unable to continue with its operations and to avoid reputational damage, which could lead to closure or, quite possibly, the sale of the business at a reduced value, it is sensible as part of your business resilience plan to safeguard against these risks by way of creation of a LPA over your property and financial affairs.

This is a legal document that enables the individual (known as the ‘donor’) to appoint persons of their choice to act as their attorney/s; to take decisions on their behalf if they are incapable of making such decisions themselves and see to all acts necessary within the permitted scope of the power, as is in your best interests.

An individual can have as many LPAs concerning their property and financial affairs as they desire, although these should be very carefully drawn up to ensure there is no conflict of interest between these and that their ultimate objectives can be met.

Business owners usually find it of great assistance to keep their personal affairs separate from those relating to their business arrangements and, in which case, would often create a LPA regarding their Property and Financial Affairs to attend to their personal needs, and a separate Business LPA (which can be more than one to deal with separate business interests as may be required should it be desirable to have different attorneys appointed for each). It is imperative that there is no conflict between the LPAs and that they run smoothly alongside each other to ensure no overlap which could cause difficulties for your Attorneys at a later date.

It is also important to note the limit to the attorneys’ authority when acting under the Business LPA as it will not extend to the personal duties of the donor acting as a director as this is a personal appointment which can only be discharged by the person holding that office. Instead, the attorneys would have the authority to act, for example, to exercise any voting rights held by the donor as a shareholder, for example, to remove the incapacitated director and appoint replacements in their place. Those newly appointed directors would then take forward decisions for the business.

There are a number of matters that do need to be very carefully considered when looking at Business LPAs to ensure that the needs and wishes of the business owner are met and enable the business to achieve its full potential and for its legacy to continue.

Contact our Agricultural Law solicitors today

If you need legal assistance for your agriculture business, then please get in touch with a member of our Agriculture and Estates team or complete this online enquiry form, and we will be happy to assist you with your enquiry.