Do You Need a Company Power of Attorney
In today’s fast paced business environment, it makes smart business sense to appoint a company power of attorney.
A company power of attorney may be better described by distinguishing it from an individual power of attorney. In simple terms, a power of attorney is an instrument that gives authority to another person to act on behalf of the principal. An individual power of attorney gives your attorney legal authority to manage your assets and financial affairs when the individual is unable to do so due to illness, accident or absence. A company power of attorney authorises a person or persons to act on behalf of a company and or sign certain documents on its behalf.
Having this ability, means that the business keeps running, even if a company director is unavailable due to incapacity or illness. This ability is especially important in a sole trader or two director company where every person is a ‘key person’.
The advantage to utilising a company power of attorney stems from the legal requirement of Section 127 of the Corporations Act 2001 (Cth), which requires two directors or a director and a secretary of a company to execute documents. This means that if even one person loses capacity, the company is powerless to sign documents or enter into agreements as the requirements under the Corporations Act have not been satisfied. A company power of attorney can resolve this problem allowing business continuity and flexibility for your business.
When granting a company power of attorney, you should consider the scope of the power based on when the power applies, in what decisions or the type of situations your attorney may need to step in.
There are three tiers of control that can be considered, depending on your business needs:
- limited power for routine transactions: a person could be granted a limited power of attorney for routine transactions only. This eliminates the hassle of needing two directors to sign off on those frequently occurring transactions.
- for specific purposes: this means, that whatever happens, you will not miss out on closing the deal. Having another person that can sign off in relation to a specific transaction means, even if a company director is out of town, the deal can go ahead.
- general powers: this is a contingency plan for the business in case a director becomes incapacitated or dies. Having a company power of attorney for this situation allows the business to continue running until a succession plan can be put in place.
There are some points to remember about company power of attorneys to avoid falling into any traps:
- an individual power of attorney is not a substitute for a company power of attorney. Even if you have granted a power of attorney to look after your personal affairs, this power will not extend to your company, and this person cannot act in your capacity as director of the company. A company power of attorney is unique to your company.
- you will continue to be liable for the acts of the company’s power of attorney. A company’s power of attorney is an agent of the principle. This may not be ideal for every director. In this situation, it may be more appropriate to appoint an alternate director instead.
How does the company power of attorney interact with my will?
A will is not a substitute for a company power of attorney because a will only comes into operation after a person dies. A company power of attorney can be used to ensure the smooth operation of the company after the death of a director, but before the executor under the will has had the opportunity to administer the estate.
At Cohen legal, we specialise in catering to the needs of contemporary businesses, in a rapidly evolving and highly demanding business environment. A power of attorney should be part of any savvy business’ risk management strategy to avoid a signatory limbo or for the long-term stewardship of your company.
If you are interested in improving business continuity and mitigating the risk to your business, call us today- our business is protecting yours.