Why do you need a business power of attorney?
A business power of attorney is a legal document that authorizes someone to act on behalf of a company. Rather than giving a broad power of attorney that would enable the authorized agent to operate freely, the document often specifies the circumstances and transactions in which the individual has power of attorney.
There are various circumstances in which such agreements can be beneficial, and those interested in appointing a power of attorney to a business partner can explore the details with a lawyer.
Do You Need a Power of Attorney?
The debate is on your company structure and how critical it is to operate it efficiently. If you become disabled or unconscious, you would prefer someone to take charge of your business to keep it on track. A power of attorney provides several safeguards that assist a business with day-to-day operations when you cannot run the organization.
Suppose your business is a limited liability company or corporation. In that case, you may not need a power of attorney for the business but rather for estate planning and management purposes. You should investigate the various power of attorney forms and have them on hand if the unimaginable occurs. It is much preferable to be prepared than to take chances.
Choosing an Agent
The agent you choose for your power of attorney in a company should be someone you have complete faith in. They should comprehend and carry out your directions and grasp how you want the business to operate in your absence.
Your selection should take into account the skills and qualities they currently possess. It is not a good idea, for instance, to designate a family member as your agent to run the firm if they have previously shown little ability for doing so.
The agent is bound by a fiduciary duty to act in your best interests. Additionally, they are obligated to maintain correct records and keep their cash and property holdings distinct and different from the assets they manage via a power of attorney.
If your agent abuses their power of attorney, you have the option of prosecuting them. However, securing a judgment against a power of attorney will take time. There is no certainty that the agent will reimburse you if you do not have any money or property remaining in your name. The best course of action is to keep in mind that your power of attorney should be someone you completely trust and who will not backstab you if given the opportunity. Even then, there is no way to account for the actions of others.
Why Should You Grant a Power of Attorney?
Every company should consider establishing a company power of attorney to ensure the continuity of company affairs and the company’s good stewardship. For sole traders, if the director is gone on vacation or business or loses the ability to sign documents due to illness or an accident, the business can be in jeopardy since no one is authorized to sign cheques or other critical documents, likely impairing the firm’s cash flow.
This is a conflict even for two director companies. This structure is often observed in many family businesses where both mom and dad serve as directors. Section 127 of the Corporations Act requires a company’s documents to be executed by two directors or a director and a secretary. This implies that if even one person becomes incapacitated, the company loses its ability to sign documents or enter into agreements since the law demands a minimum of two signatures. A company’s power of attorney can resolve this issue.
When to Grant a Company Power of Attorney?
When granting a company power of attorney, you should consider the breadth of the power in terms of when it applies, the kind of decisions that may need the attorney’s involvement, and the types of situations in which the attorney can be called upon. Consider the following three examples for determining the extent of the power:
General
A general power of attorney can also be useful in the event of unforeseen contingencies, such as when a director dies or loses capacity as a result of illness or accident. This enables businesses to continue operating in high-stress situations until a succession plan can be implemented.
Limited
To avoid the inconvenience of two directors signing, a company can decide to provide a limited power of attorney to conduct regular recurring transactions. For instance, you can empower an attorney to approve routine transactions. This can involve attesting to rental agreements or certain bank paperwork.
Specific
Alternatively, a company can award an attorney a power of attorney, allowing the attorney to execute and complete the transaction in its entirety. This can be useful when a transaction involves many moving components. The pre-prepared board resolutions did not anticipate moving parts. In particular, this strategy enables flexibility for a director who can be out of the country during a complex deal but who has to sign off on papers urgently.
Who is Eligible to Act as an Agent?
Any adult is capable of acting as your agent. This individual should be someone with whom you have complete confidence. Additionally, they should be capable of carrying out your directions. For instance, avoid appointing a cousin to run your firm if they lack business savvy.
Your agent acts in your fiduciary capacity. This word refers to their obligation to behave in their best interests. The agent’s records should be accurate, your property should be kept separate from their own, and conflicts of interest should be avoided.
What Happens Once You Die?
A power of attorney is only valid while you are alive. When you die, your will becomes effective. Typically, your executor will succeed your agent. However, the agent selected in your power of attorney can also act as executor of your will.
Conclusion
The debate is on your company structure and how critical it is to have someone to operate it efficiently. If you become disabled or out of town, you would prefer someone to take charge of your business to keep it on track. A power of attorney provides several safeguards that assist a business with day-to-day operations when you cannot lead the organization.
