Often, expert advisors are very conscious of ensuring their clients nominate a power of attorney for their personal affairs. However, it is less commonplace for such clients to have a company power of attorney.

An individual power of attorney gives an attorney legal authority to manage a person’s assets and financial affairs, usually 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 absence (including leave), incapacity or illness. This ability is especially important for sole traders or two-director companies, where every person is a ‘key person’.

An individual power of attorney is not a substitute for a company power of attorney. Even if a person has granted a power of attorney to someone to manage their financial affairs, this does not extend to their company and the attorney cannot sign documents on their behalf in their capacity as director of a company.

“Even if a person has granted a power of attorney to someone to manage their financial affairs, this does not extend to their company and the attorney cannot sign documents on their behalf in their capacity as director of a company.”

Scope of power

When granting a company power of attorney, consider the scope of the power: when the power applies, for what decisions and for the type of situations when an attorney may need to step in.

Three examples in considering the scope of the power are:

Limited power, for routine transactions – a person could be granted a limited power of attorney for routine transactions only.

For specific purposes – a company may grant a power of attorney allowing the attorney to execute and complete documents pertaining to a specific transaction. This strategy allows flexibility for a director who may be overseas during a complex transaction, but where the company needs to urgently sign-off on documents.

General powers – a company power of attorney may also be useful in case of unexpected contingencies, for instance: if a director passes away, or loses capacity due to illness or accident. This allows for businesses to continue running in stressful situations, until a succession plan can be implemented.

A director will remain liable for an attorney’s actions because an attorney acts as the principal’s agent. To reduce liability and promote accountability, the company may want to consider appointing two persons to act jointly as attorney, to act as a check and balance to each other.

A risk management essential

Each company should seek legal advice when appointing a company power of attorney because each situation and company is different.

Here’s a simple but not uncommon example (at least in recent times) that we have experienced. One of our clients who was the sole company director went overseas with her family and contracted COVID-19. She was quarantined for two weeks and it took her about eight additional weeks to get home. While she could attend to some company business over the phone and by email, signing documents and attending court was an issue. Luckily the accountant for the company was the company’s power of attorney and was able to attend to some pressing matters during her absence.

Without the company power of attorney there may have been dire consequences for the company, including loss of tender opportunities, employment issues and costs associated with court orders.

A company attorney should form part of any savvy business’s risk management strategy, as it helps avoid issues such as a company being stuck in signatory limbo. They also improve business efficacy generally and are positive for the long-term stewardship of the company. A complete estate plan for a family business must consider a power of attorney for all companies in the group, in addition to the personal and financial affairs of the individuals involved.

_{Disclaimer: This information is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of this information as it may not be appropriate for your individual circumstances.}