Protecting your business from financial risk

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If you are a company director, partner or sole trader, then you have most likely invested a lot of time, money and effort into your business and need to protect your interests.  You may already be aware of ‘Key Person’ insurance, but have you considered protecting your interests if, for whatever reason, you cannot make certain decisions?  Business owners and company directors are extremely busy people.  If you were unable to make decisions due to capacity issues, wouldn’t you want to have a plan in place to ensure that the day to day running of your business runs smoothly in your absence?

People tend to think of lack of capacity as a gradual process linked with old age; however this is not the case.  You may not be able to make certain decisions if you are out of the country, have had a serious accident, or have become unwell, mentally or physically, which incapacitates you.

In these circumstances, unless you have appointed an attorney to deal with finances, the risk and disruption to your business could be enormous.   Your business may be left vulnerable without an authorised person to deal with the business bank accounts. This could result in staff wages not being paid on time, third party suppliers not being paid, business loans/mortgages not being serviced and potential contracts lost.  In today’s climate, many business owners act as personal guarantors for the business loans. If your company did go into liquidation then your personal assets including your home could be at risk.

There is a common misconception that Lasting Powers of Attorney (LPA) can only be used for personal use.  This is certainly not the case.

A Financial LPA gives you the opportunity to prepare for0 any unexpected situations by allowing you to appoint someone who will step into your shoes and make essential business decisions on your behalf, should you become unable to do so. This should be a trusted person, who knows you well and understands how you like to make decisions. The type of financial decisions your attorney can make includes:

  • Accessing your business bank accounts;
  • Opening and closing bank accounts;
  • Dealing with business property;
  • Investing your assets;
  • Dealing with tax affairs.

You are able to appoint more than one attorney to act in conjunction with each other.  For example, a business associate can be appointed to work alongside a family member.  The attorneys could be appointed to act jointly in some aspects and separately in others – for e.g, the business associate could be appointed to negotiate business contracts without the family member but would not be able to access the business bank accounts without the approval of the family member.  Alternatively, you may wish to keep business matters separate from personal matters and make two LPAs – one LPA dealing with your personal finances and one LPA dealing with your business finances.  If you are considering making two LPAs, or an LPA in which you appoint attorneys to act jointly for some decisions and jointly and severally for other decisions, we suggest you seek legal advice to ensure that the LPAs are drafted correctly and will not be incompatible or invalid.

The Financial LPA can be used as soon as it is registered with the Office of the Public Guardian and can also be revoked if you retire or sell your business – as long as you still have the capacity to revoke it. The LPA can also be structured in a way that it can only be used if you lose mental capacity (instead of physical capacity).

If you have not put in place a LPA and you do lose capacity, then a Deputy will need to be appointed by the Court of Protection, which can take several months to arrange and can also be a costly exercise. During this crucial time, there is a risk that your business will continue without someone making those key financial decisions.

Looking forward, consider whether your business would be protected if you or another director/partner were unable to make business decisions. Make a LPA part of your business continuity plan and protect the business that you have worked hard to build.

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