By Emma Myers, Head of Wills, Probate and Lifetime Planning for Saga Legal Services
Small business owner/operators should take steps to protect their business in the event that they lose capacity to make financial decisions. A primary means of doing this is with a lasting power of attorney (LPA) – a legal document where someone nominates another person to make decisions on their behalf should they lose capacity to do so through illness or major accident. When the owner/operator of a small business loses capacity, the risk is that the business maybe unable to function properly, leading to lost revenues, or even closure of the business.
There are two types of LPA: one covering health and welfare, and one covering financial and property affairs. While both are important, business owners should certainly consider the latter to ensure that invoices and staff are paid, that decisions can be made with banks and financial institutions, and that a trusted person has the authority to make decisions that keep the business running. The warning is particularly relevant to the over 50s as one in five people in this age bracket are self-employed. For those who are staking their long-term financial future on a sole source of income, an LPA could be vital.
Without an LPA, even the closest of family members will find it exceedingly difficult to make decisions on behalf of another. Simply: banks, the local council, and other institutions will not talk to anyone who is not the account holder without an LPA in place and it is not possible to make an LPA once someone has lost capacity; they have to make one ahead of time. If an LPA has not been made, relatives can apply to become a deputy, but this can often take months to achieve, and is usually extremely costly.
While having an LPA is appropriate for most business owner/operators, there are certain types of business where the need is particularly apparent. Livestock farmers, for example will need to ensure that animals are fed and tended to, and that large orders can be fulfilled on time. Micro businesses, the self-employed and freelancers may also be harder hit than most, particularly if there is no-one obvious who could step up to look after day-to-day operations on at least a short-term business.
Registering one LPA with the Office of the Public Guardian costs £110. However, if it is submitted incorrectly, there is a chance that it will have to be resubmitted and paid for again. This is why many people choose to pay extra for a professional service to ensure they get it right the first time. If you do choose a professional, make sure you shop around for the right deal, as prices vary enormously.
As with all legal services, it’s best to agree a fixed price up front to avoid escalating costs. It’s also worth noting that some solicitors offer a Business LPA, but that this is likely to be a regular LPA which contains information about the business in question so should not be offered at a premium price.
LPAs are starting to get the recognition they deserve, but they are still fundamentally misunderstood and very few people actually have them. Any freelancer, sole-trader or small business owner/operator should think carefully about what would happen to their business if they became unable to do so, and what this would mean for them – and their employees’ – financial future. Having an LPA would also alleviate most of the stress and cost to family members.