Companies may have a clear strategy for their business operations but may not always have a plan in place should one of their directors and/or shareholders lose capacity. Preparation is especially important for sole director-shareholder companies, as should loss of capacity happen swiftly it may be too late to take some of the critical steps.
Capacity relates to an individual’s ability to make a decision and, under the Mental Capacity Act 2005, it is assumed that someone has capacity, unless it is established that this has been lost. Appointment as a director is a personal role and one that cannot be delegated in its entirety. Shareholders can vote on a range of decisions that can fundamentally alter a Company, for example, amending its Articles of Association or approving loans.
The starting point when a director may have lost mental capacity is the Company’s Articles of Association. These may contain a provision that dictates that when a director loses capacity, they automatically cease to hold the office of director. It may also be necessary to seek medical confirmation of loss of capacity, should there be any doubt of the same.
An essential tool that can be used to assist in such situations is a Lasting Power of Attorney (LPA). LPAs can be used to delegate shareholder powers to an attorney. They cannot be used in the same way for directors’ powers, due to the personal nature of a directorship. Attorneys must therefore consider this when looking to utilise the LPA. Companies should also consider drawing up a Shareholders’ Agreement, which can provide certainty on matters if a shareholder loses capacity.
Our Corporate and Commercial and Private Client teams would be happy to assist with advice on the Company law position if a director or shareholder loses capacity or the preparation of an LPA.
If you wish to discuss this further, please do not hesitate to contact Molly Mackay by email: mxm@cooperburnett.com or tel: 01892 515022
This blog is not intended as legal advice that can be relied upon Originally published in the Tunbridge Wells Business Magazine: www.twbusinessmagazine.com
