Why Every Business Should Have a Power of Attorney

Oct 31, 2021 | 0 comments

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A power of attorney (POA) has certain authority if the principal becomes incapacitated and allows their business operations to run uninterrupted.

A power of attorney is an important piece of document that legally appoints and allows an agent or attorney to make decisions on the principal’s behalf. Depending on the type of POA, an agent will have the authority over a set of matters. This could be related to healthcare, finances, business, or even legal matters.

A POA is activated when the principal or owner is unable to make decisions on his own due to illness, incapacity, or other specified reasons. People with long-term goals need to plan out all the uncertainties. A power of attorney can be extremely useful for switching a set of responsibilities to someone you trust for a limited time.


What Is a Lasting Power of Attorney?

The POA used to secure or protect your business is called the Lasting Power of Attorney or LPA. It allows an agent to make decisions related to the principal’s business interests when they are unable to or are suffering from mental incapacity. A business LPA is different from financial and property LPAs. 

General power of attorneys is widely used in businesses to handle a range of business decisions. Furthermore, a business LPA is an extended version of it that gives the appointed agent more authority over managing business interests, risks, and personal finances.

A business LPA remains effective even after the death of the principal, and it can be extremely helpful in mitigating business risks when the founder or owner is incapacitated. It can also protect the business’s future claims and insurance costs. If you are wondering how to obtain power of attorney, it is pretty straightforward. Contact an estate planning lawyer, and they will guide you the way.

Why Do You Need a Business LPA?

Let’s dive into the specifics of actually why, how, and when a business LPA can secure your business. 

According to the Mental Health Act of 2013, partnerships or companies cannot remove someone from the board of directors based on mental incapacity. This means mentally unstable people can make important business decisions and people will have to abide by them.

This is further bolstered by the Equality Act of 2011. This act prevents discrimination against partners or directors on the grounds of mental disability. This leaves the company in a grey area. Thus, it is extremely risky to leave important decision-making to an incapacitated person. If you have a business lasting power of attorney, you can hand over those roles and responsibilities to someone in a stable condition.

What Happens to Your Business?

Assuming you have become incapacitated and do not have an LPA or POA, what happens to your business now?

First, all decision-making activities will be postponed, and your partners will be put in a difficult situation. Your shareholder’s agreement and company’s working capital and operating agreements will need your input for any decisions. Since you will temporarily be unable to make these decisions, your company will come to a standstill. If this goes on any longer, banks will freeze your accounts, cease overdraft facilities, and call in loans.

What Happens to Your Family?

This directly affects your family as well. If you become incapacitated without an LPA or a power of attorney, then you will have to legally appoint someone to act on the incapacitated person’s behalf.

This procedure is called guardianship. It is usually time-consuming, expensive, and emotionally challenging to appoint someone during that time. Also, the process of guardianship varies from state to state. Without a pre-organized LPA, your entire business can come to a standstill for an undefined period.

How to Choose a Business LPA

The most important trait of your chosen attorney will be loyalty. They have to decide what is best for you and the company. Your attorney will be responsible for all of your business affairs. If you wish to appoint multiple attorneys, they can work individually, but in some instances, they will also have to work together, so communication is another important trait.

Last, they will need the right skill sets, knowledge, and qualifications to manage your business affairs. Without being competent, they may become subject to claim because of their unsuitability.


Who Requires Business LPAs the Most?

Multiple people can benefit from creating a business lasting power of attorney such as the following:


Partnership agreements usually consult about provisions related to incapacity. Since the equality act and mental health act prevent the process of removing a partner with mental incapacity, partners can consider each other as business LPAs. This works for general, limited, and limited liability partners, and the right business partner can ensure everything runs smoothly even in your absence.

Sole Traders

Unlike corporations, sole proprietorship businesses do not have a separate entity. So, if the owner suddenly becomes ill or suffers from mental incapacity, risks could infiltrate the business.

Company Directors

You can no longer issue a court order to remove a director suffering from an incapacity. They can be removed from the position by a shareholders meeting, but even then, they will be given the chance to defend themselves. Again, the discrimination and equality act can prevent this from happening. To protect the company’s best interests, it would be wise to simply arrange a business LPA before any unfortunate incidents.

How to Arrange an LPA

Organizing a business LPA is pretty straightforward. First, you will have to complete and sign an LPF1 form. Signing take place under the presence of the chosen attorney, a certificate provider, and a witness. The OPG, or Office of the Public Guardian, registers the form. 

It’s important to make sure your LPA states that your attorney only has authority over your business affairs.

Final Thoughts

A business lasting power of attorney protects your business from unexpected risks. It protects the company’s best interests. So, even without the presence of the owner, an attorney can handle the operations and ensure stable conditions. 


The post Why Every Business Should Have a Power of Attorney appeared first on Business Opportunities.

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