Why your busi­ness needs a com­pa­ny pow­er of attor­ney — Five things to know

A com­plete estate plan for a fam­i­ly in busi­ness must con­sid­er a pow­er of attor­ney for all com­pa­nies in the group. 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.

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

  1. Why grant a pow­er of attorney?

Every com­pa­ny should con­sid­er hav­ing a com­pa­ny pow­er of attor­ney in place to ensure con­ti­nu­ity of com­pa­ny affairs and good stew­ard­ship of the com­pa­ny. Pow­ers of attor­ney are crit­i­cal in a sole trad­er or two direc­tor com­pa­ny where every per­son is a key per­son”. For sole traders, if the direc­tor is away (whether on hol­i­days or work trips) or los­es capac­i­ty to sign doc­u­ments (per­haps due to ill­ness or acci­dents), the busi­ness could come to a grind­ing halt as no one is autho­rised to sign off on cheques or key doc­u­ments, like­ly affect­ing cash flow of the business.

This is prob­lem­at­ic even for two direc­tor com­pa­nies. Often, this struc­ture is seen in many fam­i­ly busi­ness­es where both mum and dad are direc­tors. Sec­tion 127 of the Cor­po­ra­tions Act 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 law requires a min­i­mum of two sig­na­tures. A com­pa­ny pow­er of attor­ney can fix this problem.

  1. When to grant a com­pa­ny pow­er of attorney?

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. Below are three exam­ples in con­sid­er­ing the scope of the power:

  1. Lim­it­ed pow­er for rou­tine trans­ac­tions — A com­pa­ny may wish to grant a lim­it­ed pow­er of attor­ney to com­plete recur­rent rou­tine trans­ac­tions to avoid the has­sle of two direc­tors hav­ing to sign. For instance, you may grant a pow­er of attor­ney to sign off on rou­tine trans­ac­tions. This could include sign­ing off on rental invoic­es or cer­tain bank documents.

  2. For spe­cif­ic pur­pos­es — Alter­nate­ly, a com­pa­ny may grant a pow­er of attor­ney allow­ing the attor­ney to exe­cute and com­plete a whole trans­ac­tion. This may be use­ful where there are many mov­ing parts to a trans­ac­tion and pre-pre­pared board res­o­lu­tions may not have antic­i­pat­ed all parts to the trans­ac­tion. In par­tic­u­lar, 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.

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

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

No, a key rea­son why com­pa­ny pow­ers of attor­neys are so impor­tant is that 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 some­one to man­age your finan­cial affairs, this does not extend to your com­pa­ny and the attor­ney can­not sign doc­u­ments on your behalf in your capac­i­ty as direc­tor of a company. 

A com­pa­ny pow­er of attor­ney can be grant­ed to a per­son or per­sons. As the com­pa­ny pow­er of attor­ney is unique to your com­pa­ny, you should con­sid­er who would be a suit­able attor­ney for your company.

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

A direc­tor will remain liable for an attorney’s actions as an attor­ney acts as a principal’s agent. In some cir­cum­stances, this may not be ide­al for an exist­ing direc­tor – in these cir­cum­stances, you may con­sid­er appoint­ing an alter­nate direc­tor instead. To reduce lia­bil­i­ty and pro­mote account­abil­i­ty, the com­pa­ny may want to con­sid­er appoint­ing two per­sons to act joint­ly, to act as check and bal­ance to each other.

  1. 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 (which estate may include shares in the com­pa­ny). We pre­vi­ous­ly dis­cussed what hap­pens if a sole director/​shareholder dies here.

In con­clu­sion, a pow­er of attor­ney should be part of any savvy busi­ness’ risk man­age­ment strat­e­gy to avoid a sig­na­to­ry lim­bo and for the long-term stew­ard­ship of your com­pa­ny. We can assist you with draft­ing your com­pa­ny pow­er of attor­ney to ensure your busi­ness is well-tak­en care of, but with prop­er bound­aries in place.