Beyond the bottom line: protecting your business from unexpected incapacity

By Eloise Smith, Solicitor at Mayo Wynne Baxter.

For business owners, managing operations and finances can be rewarding but challenging. However, if you or a key individual becomes incapacitated, the business may face significant disruption. Critical decisions, such as signing contracts, handling finances, or making staffing changes, could be delayed. Selling or transferring the business might become difficult, and relationships with clients, employees, or suppliers could be strained. Without a plan in place, the business could face financial instability and legal complications, leaving its future uncertain.

Someone in your business could become incapacitated due to scenarios like a dementia diagnosis, a severe stroke, a head injury from a fall, or an unexpected mental health condition that impairs decision-making. In these situations, Lasting Powers of Attorney, the Court of Protection, and the deputyship process are vital for safeguarding both personal and business interests.

Setting up a Lasting power of Attorney (LPA) is a crucial step in protecting both personal and business interests. An LPA allows trusted individuals, such as business partners, family members, or professional advisers, to step in immediately and manage business operations, finances, contracts, and staff decisions on your behalf, ensuring that the business continues to run smoothly and preventing unnecessary delays. By establishing an LPA, business owners maintain control over who will manage their affairs in the event of incapacity, rather than having the Court of Protection appoint a deputy who may not fully understand the business’s needs and goals.

When setting up an LPA, business owners have the opportunity to include specific instructions or preferences that can guide their attorneys in making decisions that align with their wishes and the business’s goals. This flexibility allows the business owner to ensure continuity in line with their values and vision, even if they are unable to participate in decision-making themselves.

Without a Lasting Power of Attorney (LPA), the Court of Protection is often the only legal route through which decisions can be made on behalf of a business owner or key employee who can no longer make decisions.

Deputyship is the process through which the Court of Protection appoints an individual or individuals to make decisions on behalf of someone who has lost the ability to do so due to mental incapacity.

There are two main types of deputyship: Property and Financial Affairs Deputyship, which covers decisions related to managing finances and running a business, and Health and Welfare Deputyship, which involves making decisions about the individual’s healthcare, medical treatment, and personal care.

Property and Financial Affairs Deputyship is especially important for business owners because it ensures that the business can continue to operate smoothly. A deputy can handle vital tasks such as paying bills, signing contracts, managing payroll, and ensuring that the business remains financially stable and legally compliant during periods of incapacity.

The deputyship process begins with an assessment of mental capacity, conducted by a professional such as a GP or social worker. If the individual is found to lack the capacity to make decisions, a formal application for deputyship is submitted to the Court of Protection. Once the application is approved, the court appoints a deputy with the legal authority to make decisions on behalf of the incapacitated person. Deputies are required to act in the best interests of the individual they represent and are subject to ongoing oversight by the Court of Protection, which may involve regular reporting on financial matters.

While deputyship is an essential safeguard, it is not without its challenges. The application process can be lengthy and expensive, taking several months, which can lead to delays in making crucial business decisions. Additionally, the costs associated with applying for deputyship, including legal and professional advice, can add up, and deputies may be required to submit annual reports, further increasing the complexity and cost.

To avoid these complications, business owners are advised to plan ahead by setting up an LPA for both property and financial affairs and health and welfare. An LPA provides a smoother, faster solution, allowing trusted individuals to make decisions on your behalf without the need for a lengthy court process. Given the complexities surrounding deputyship, it’s also important for business owners to consult legal professionals who specialise in this area. A lawyer can help navigate the deputyship application process and ensure the business remains protected during times of incapacity.

In conclusion, understanding the Court of Protection and the deputyship process is crucial for business owners who want to safeguard their business interests in the event of mental incapacity. By planning ahead and establishing an LPA, business owners can protect both their personal and business affairs, ensuring continuity, security, and peace of mind for themselves, their families and their businesses.

www.mayowynnebaxter.co.uk