22.08.22

As a business owner, the ability to make decisions about the running of your business is crucial.  You may be the only person in the business with the responsibility for decisions or, in a company or partnership, you may have particular areas of the business you are responsible for. 

It is essential for business owners to consider future plans and take steps to put contingencies in place to minimise risk to the business. For example, insurance policies to protect business property or assets, life insurance covering the death of an owner or succession planning for retirement.  But, have you ever considered the implications if you were to lose the ability to make decisions?   

Any of us could lose mental capacity suddenly, due to an injury to serious illness. As we outlined in our previous blog on developing vulnerability, a loss of capacity might be something that happens suddenly or which deteriorates over time. A temporary loss of capacity may not cause issues with the running of the business but longer term, or even permanently, incapacity could significantly affect how a business can operate.   

Mental health problems or a gradual loss of mental capacity, from conditions such as Parkinson’s and dementia, can also lead to a business owner struggling to fulfil their duties as a decision maker. 

What is mental capacity?

Mental capacity refers to a person’s ability to understand and make decisions.  In order to make a decision you must be able to understand all the information that is relevant, retain the information and use it to make the decision. Importantly you also need to be able to communicate your decision. 

If a business owner were to lose mental capacity to make certain decisions, who would have the ability to step in and would they have authority to do so?   

How can business owners mitigate this risk?

The starting point is to check any arrangements already in place.  For example, a shareholders’ agreement might include details on decision making if a shareholder loses capacity.  A company’s articles of association may also deal with the situation if a director loses capacity.   

These arrangements may be sufficient to enable day to day business to continue but you also need to consider if they cover the longer term plans for the business.  Issues such as voting rights or sale of shares will need to be reviewed, as well as the rights to appoint a new director to a company. 

It is also important to check if the business owner has made a Lasting Power of Attorney (LPA) for Property & Financial Affairs.  If so, their chosen attorneys may have been given powers to make decisions about the business.  It is advisable for business owners to consider a separate Lasting Power of Attorney specifically covering business decisions.  It may be appropriate to choose an experienced and qualified person, as opposed to a friend or family member, to make business decisions on your behalf.  The powers given to them can be tailored to meet the specific needs of the business and reflect your wishes for the running of the business. 

What happens if an LPA is not in place and the worst happens?

If none of these provisions are in place, it may be necessary to apply to the Court of Protection to appoint a Deputy to make decisions regarding the business.  This is not a straightforward process and will require specialist advice to ensure a Deputy can be appointed as soon as possible to step in and assist with the running of the business. Furthermore, the Court of Protection is a system not (currently) known for its speed and any application would not necessarily be dealt with in a timeframe that would be sufficient to avoid disruption to the business and its operations. 

Any business owner should regularly review their plans for the future of the business and consider their options in the event of loss of mental capacity. 

How can we help?

Our specialist team are highly experienced in Lasting Powers of Attorney as well as applications to the Court of Protection for Property and Financial Affairs. Please contact us to discuss your own personal situation.