Business Succession Planning

BUSINESS SUCCESSION PLANNING – WHY YOUR COMPANY NEEDS A GENERAL POWER OF ATTORNEY

A thorough estate plan for family businesses should include a power of attorney for all companies within the group. A power of attorney is a document that delegates authority to another person to act on behalf of the principal which in this case is the Company.

An individual power of attorney provides your attorney with legal authority to manage your assets and financial affairs when you cannot due to illness, accident, or absence.

A company power of attorney empowers one or more individuals to represent a company and sign specific documents on its behalf.

We address five common questions about company powers of attorney below:

Why grant a power of attorney?

Company powers of attorney are crucial for maintaining continuity in company affairs and ensuring good stewardship. They are particularly important for sole traders and two-director companies, where each person is a “key person.” Having a company power of attorney in place can prevent the business from coming to a halt if a key person is away or incapacitated.

When to grant a company power of attorney?

Consider the scope of the power when granting a company power of attorney, including when it applies and the decisions or situations in which your attorney may need to step in. Examples include limited power for routine transactions, power for specific purposes, and general powers for unexpected contingencies.

There are different types of power that can be granted by a company:

1. Lim­it­ed pow­er for rou­tine trans­ac­tions — A com­pa­ny may wish to grant a lim­it­ed pow­er of attor­ney to com­plete recur­rent rou­tine trans­ac­tions such as signing lease documents, rental invoices or dealing with a matters related to a particular supplier or one element of their business to avoid the has­sle of two direc­tors hav­ing to sign every time.
2. For spe­cif­ic pur­pos­es — Alter­nate­ly, a com­pa­ny may grant a pow­er of attor­ney allow­ing the attor­ney to exe­cute and com­plete a whole trans­ac­tion for example the acquisition of a particular property or setting up a new team and office in a new location. This type of power of attorney may be use­ful where there are mov­ing parts to the trans­ac­tion and it may not be possible to anticipate all of the parts to the transaction in pre-pre­pared board res­o­lu­tions. This type of power of attorney can also be useful if for example a direc­tor may be over­seas dur­ing a com­plex trans­ac­tion, but where the com­pa­ny will need to urgent­ly sign off on documents throughout the transaction.
3. Gen­er­al pow­ers– A company pow­er of attor­ney is particularly use­ful in the event of unex­pect­ed circumstances, for instance, if a direc­tor dies or los­es capac­i­ty to make decisions due to accident or illness. This allows for busi­ness­es to con­tin­ue to operate in difficult sit­u­a­tions until a suc­ces­sion plan can be set up.

Can I use an individual power of attorney for company matters?

No, an individual power of attorney is not a substitute for a company power of attorney. Even if you have granted a power of attorney for your personal financial affairs, it does not extend to your company as the company is a separate legal entity.

Will I still be liable for the acts of my company’s power of attorney?

As a director, you will remain liable for an attorney’s actions since the attorney acts as an agent of the principal. To reduce liability and promote accountability, consider appointing two persons to act jointly, providing checks and balances for each other.

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 effect after a person dies. A company power of attorney can help ensure the smooth operation of the company after a director’s death but before the executor has had the opportunity to administer the estate.

In conclusion, a power of attorney should be part of every prudent business’s risk management strategy to avoid signatory limbo and ensure the long-term stewardship of the company. Properly drafted company powers of attorney can help ensure your business is well-taken care of with appropriate boundaries in place.

At McLaughlins Lawyers, our dedicated Commercial and Estate Planning Lawyers have extensive experience in business succession planning. Our team is passionate about providing our clients with the highest level of service. We don’t believe one size fits all; we take the time to properly and thoroughly get to know your business and assess what you need to properly protect your business interests.

To discuss your business succession needs, please call our team of dedicated commercial and estate planning lawyers today!

Prepared by Pip Davis

Legal Practice Director Paul Robert Davis

Date: 31.03.2023