As the saying (almost) goes, you don’t have to be crazy to be a business owner, but it helps. However, when talking about actually losing your mental capacity, many business owners are unprepared for what would happen to their business in such a case.
Most business owners like to think that they are irreplaceable and that the business cannot function without them. While that may be true, this is of no help at all if the worst were to happen. This is especially the case where the business owner loses mental capacity and cannot run the business any more, but still needs the income in order to continue to pay the bills or fund care costs. The owner’s family might be finding it difficult enough without having the additional strain of the money running out as well.
If you’re reading this as a business owner, it may be worth asking yourself the following: if I were to lose mental capacity, who will be able to make business decisions on my behalf?
Some of the consequences which can result from a business owner losing their capacity are:
Your bank accounts may be frozen.
If you’re a regulated professional, your regulatory body may intervene.
Contracts may become unenforceable.
Debtors may not be chased for payment and payments may not be made to creditors.
If the business is seeking funding from banks or other companies or individuals, they may be less inclined to continue.
A lasting power of attorney (‘LPA’) allows a person lacking mental capacity to appoint someone (or more than one person) to make decisions on their behalf.
If an individual loses mental capacity and there is no LPA in place, then (at great cost and inconvenience) deputyship can by applied for from the Court of Protection. LPAs are distinct from wills, however; LPAs concern decisions during an individual’s lifetime, whereas a will only becomes effective upon death.
LPAs give someone the opportunity to make specific wishes and set out precisely what they wish be done. This is likely to be extremely business-specific, as what your business needs and what it already has in place in terms of contingency planning will also need to be taken into account when setting out your instructions to the attorney.
So, who should your attorney be? They will need to be trustworthy and reliable, as an absolute minimum. However, you should consider who would be best placed to ensure your wishes are carried out and that business interests are respected. This will include factors such as how well they understand you, your business model and your aims and objectives. You should also consider whether there a risk of undue influence from others within the business who may affect the attorney’s decisions or compromise their conduct or whether their appointment would risk internal disputes. This is particularly a issue in family run concerns, where the appointment of one sibling over another may cause internal ructions.
Whilst nothing is certain, it is always imperative to ensure plans are in place and steps are taken to minimise disruption and damage to business should the worst happen. By putting in place plans to minimise damage and disruption, such as an LPA for your business, you can have peace of mind that your business is in safe hands.
At Coles we can offer specailist cross department teams from our breadth of expertise to ensure that we can advise your business on both business law and planning opportunities to keep you and your business on track, and whats more, we can offer this at any of our 10 offices, not just the commercial centres of York & Harrogate. Contact our business team today on 0800 160 10 10.