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Power of Attorney is usually associated with the care of elderly relatives. But owner operators of small to medium sized businesses need to consider these too.
SME 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.
“LPAs are starting to get the recognition they deserve, but they are still fundamentally misunderstood and very few people actually have them,” says Emma Myers, head of wills, probate and lifetime planning for Saga Legal Services. “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.”
There are two types of LPA: one covering health and welfare (which will be familiar to those caring for elderly or seriously ill relatives) and another covering financial and property affairs. SME owners should consider the latter.
This is especially relevant to those drawing toward retirement and reliant on their company’s income.
The belief that business will carry on as usual in your absence can be a serious error: without an LPA, invoices and staff may go unpaid. Unless you give a trusted person with the authority to make decisions that keep the business running, vital decisions (for example with banks and/or financial institutions) cannot be made. Even the closest of family members cannot liaise with banks, the local council or other institutions will not talk to anyone who is not the account holder without an LPA in place.
Forethought is vital: an LPA cannot be made once someone has lost capacity; 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.
The price of not having an LPA pales into insignificance when compared with the £110 cost of registering one with the Office of the Public Guardian. Some may find the process complicated and time consuming. Mistakes may mean that the application has to be resubmitted and paid for again so you may choose to pay extra for a professional service, although you should shop around for the right deal and agree a fixed price up front to avoid escalating costs.
For more information about LPAs:
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