LPA for Business Owners UK (2026): Who Runs the Company If You Lose Capacity?

If a sole trader loses mental capacity and has no registered Property and Financial Affairs (P&FA) LPA, the business is in immediate crisis: (1) Bank accounts: the bank will freeze all accounts in the sole trader's name (which are legally indistinguishable from personal accounts for a sole trader). No transactions, payroll, or supplier payments can be made; (2) Contracts: the sole trader's personal capacity is required to bind the business in new contracts. Without capacity and without an attorney appointed under a registered LPA, there is no one with legal authority to enter contracts; (3) HMRC and VAT: the sole trader is personally registered for Self Assessment, PAYE (as employer), and VAT. HMRC correspondence requires a response. A third party without legal authority cannot file returns or respond to HMRC on the sole trader's behalf; (4) Employees: payroll cannot be processed without access to the business bank account. Employees may technically be entitled to wages even if unpaid — the business faces employment law liability; (5) To restore authority, the only route is a Court of Protection deputyship order (Mental Capacity Act 2005 s.16) — this typically takes 6 to 12 months and costs £3,000–£5,000 in professional fees and court costs. During this time, the business may have failed entirely. In contrast, with a registered P&FA LPA, the nominated attorney can immediately: access business accounts; pay suppliers and employees; sign contracts; deal with HMRC; and manage the business until the owner recovers or the situation is resolved. A sole trader should register a P&FA LPA and make sure the attorney understands the nature of the business. The LPA donor may include a specific instruction in the LPA about business management preferences.

A P&FA LPA covers the director's personal financial affairs and their rights as a shareholder — but it does not give the attorney the authority to act as a director of the company in their own right. This is an important distinction: (1) What the LPA covers for a company director: the attorney can: exercise the director's voting rights as a shareholder at general meetings; receive dividends and distribute them; manage the director's personal bank accounts (including any director's loan account); enter the company's Articles of Association and shareholders' agreement on behalf of the director as a party; deal with the director's personal assets and debts; (2) What the LPA does NOT cover: the attorney cannot become a director of the company simply by virtue of the LPA — they would need to be formally appointed as a director under the Companies Act 2006; the attorney cannot exercise the director's powers in board meetings unless separately appointed as a director; (3) Directorship on incapacity: a director who loses mental capacity does not automatically cease to be a director under general company law. However, most well-drafted Articles of Association (or the Model Articles in Schedule 1 of the Companies (Model Articles) Regulations 2008) contain provisions allowing the board or shareholders to remove a director who lacks capacity. The remaining directors can continue to manage the company if a quorum remains; (4) Single director companies: if the company has a sole director who loses capacity, and no quorum of directors exists, the shareholders must pass a resolution at a general meeting to appoint a new director. The attorney under the LPA can exercise voting rights to call and attend that meeting on the incapacitated director's behalf — but cannot appoint themselves without being approved as a director through proper company procedures.

A well-drafted shareholders' agreement (SHA) should contain specific provisions dealing with the incapacity of a director-shareholder — these provisions sit alongside (and take precedence over) the default Articles and the LPA: (1) Incapacity clause: the SHA should define 'incapacity' (typically linked to a medical determination or Court of Protection order) and provide clear consequences: suspension of voting rights; trigger of a buy-out mechanism; obligation to appoint an alternative director; (2) Compulsory transfer provisions (drag-along/tag-along on incapacity): if the incapacitated director's shares are to be bought out by the remaining shareholders, the SHA should specify: the valuation methodology (often a multiple of EBITDA or net asset value); who has the right to buy (pre-emption among existing shareholders); the payment terms (lump sum or deferred); whether the LPA attorney can consent to the sale on behalf of the incapacitated shareholder; (3) Decision-making during incapacity: the SHA should specify whether a proxy (including an LPA attorney) can vote on behalf of an incapacitated shareholder at board and general meetings, and whether certain resolutions require the incapacitated shareholder's specific consent (which may require a Court of Protection application if the LPA is insufficient); (4) Life and incapacity insurance: many SHAs include a requirement for each director-shareholder to maintain 'key man' or 'shareholder protection' insurance to fund the buy-out on incapacity or death. This prevents a liquidity crisis when the buy-out right is triggered; (5) Business LPA: the SHA can specifically contemplate the existence of a registered P&FA LPA as part of the incapacity planning — and provide that the LPA attorney has standing to participate in the SHA process on the incapacitated shareholder's behalf.

If a sole director of a limited company loses capacity, the company's HMRC obligations do not pause. The company remains legally obliged to file and pay on time: (1) Corporation Tax (Self Assessment): the annual Corporation Tax return (CT600) must be filed within 12 months of the end of the accounting period, and tax paid within 9 months and one day. Missing these deadlines triggers automatic penalties (£100 for the first day late, escalating). The surviving directors (if any) can sign the return. For a sole director company with no alternate director, no one may have authority to file — the Court of Protection would need to grant a deputyship; (2) VAT: quarterly VAT returns must be filed and paid. If the company is VAT-registered and the sole director loses capacity, the surviving managers/employees cannot file without authority. HMRC can issue assessments and penalties regardless of the reason for non-filing; (3) PAYE: employer PAYE must be reported monthly via Real Time Information (RTI). Failure triggers penalties. Payroll software can be operated by any authorised employee, but direct interaction with HMRC requires an authorised agent or company officer; (4) Companies House: confirmation statement and accounts must be filed annually. Filed by the directors — if the sole director lacks capacity, no one has authority without a deputyship or alternate director appointment; (5) HMRC agent authorisation: the attorney under a P&FA LPA can authorise an accountant as HMRC agent for the incapacitated sole trader. For a limited company, the attorney may be able to act as a tax representative only with HMRC's agreement — this is a complex area where specialist advice is essential.

Business owners should take the following steps to ensure their business can continue to operate if they lose capacity: (1) Register a Property and Financial Affairs LPA now: the registration process (Office of the Public Guardian) currently takes 8–20 weeks. Capacity can be lost suddenly — a stroke, a serious accident — and an unregistered LPA cannot be used in an emergency. The cost is £82 per LPA (2026), or £41 for those on low incomes; (2) Choose the right attorney: the attorney should: understand the business and be capable of making business decisions; be trusted to act in the LPA donor's best interests; ideally be named as an alternate director in the company's Articles or by a board resolution — so they have formal authority within the company as well as personal authority via the LPA; (3) Tell your bank: once the LPA is registered, notify the company's bank. Banks require a copy of the registered LPA before they will act on an attorney's instructions. Doing this before capacity is lost means the attorney can access accounts without delay; (4) Review and update your Articles of Association and shareholders' agreement: ensure the documents: contemplate incapacity (not just death); include an incapacity buy-out mechanism; allow the LPA attorney to exercise shareholder rights; specify who can call an emergency board meeting to appoint a replacement director; (5) Consider a deputy director or alternate director: appoint a trusted colleague as an alternate director who can step in immediately if the primary director is incapacitated, without needing to go through Companies House. Alternate directors are permitted under most Articles and require only a board resolution to appoint; (6) Consider a business lasting power of attorney: in some jurisdictions a specific business LPA can be drawn up — seek advice from a solicitor specialising in private client and corporate law.