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Hi everybody - George Sourris, Empire Legal.
Today's topic: Company Power of Attorney
Today we are talking about a topic that is a common example of something that often gets forgotten about. That is, right up until it's a problem, and then you wished you would have sorted it out earlier!
Because now you're in a sticky situation. Let's be real, nobody wants to be in a sticky situation. Yes, I'm talking about what happens to your business if you lose capacity to make decisions.
A company power of attorney, put simply, is like a personal enduring power of attorney, but for your company. It allows business owners to protect themselves and have machinery in play in the event that they lose capacity and are unable to make decisions.
Come with me on a journey. Let's explore further.
What is a company power of attorney?
It is a legal document established by a company's director, that designates an individual or entity to act on behalf of the company. This arrangement takes effect if the director becomes incapacitated due to conditions such as illness or injury, like a stroke.
The appointed attorney is empowered to sign documents for the company. If the company serves as a trustee for a trust, the attorney can also execute documents on behalf of the trustee company for the trust, as long as it's clearly stated in the power of attorney.
Why create a power of attorney?
Business owners invest considerable effort and resources into their businesses, yet they may overlook the importance of establishing safeguards for unforeseen circumstances affecting their capacity as directors or owners. A company power of attorney ensures that someone can manage the company's affairs in the event the director is incapacitated due to health issues or accidents.
Furthermore, this document can be useful when a director is temporarily unavailable, for example during an overseas trip or recovery from surgery, allowing someone trusted to make essential decisions and maintain business operations.
Creating a company power of attorney is a relatively simple process and is advisable for anyone managing a business to ensure their company is cared for by someone reliable, should the unexpected occur.
While we cannot predict disasters, it's wise to prepare for the unknown.
Consequences for not having a company power of attorney.
If a director suddenly loses mental capacity without a company power of attorney in play, the company can face significant disruption, especially if they are the sole director and shareholder.
In the absence of this document, the company's operations may be halted until a request is made to the Queensland Civil and Administrative Tribunal (QCAT), to appoint someone to manage the company's affairs.
This process can take months, and there's no guarantee that your preferred individual will be chosen, potentially leading to control by the Public Trustee, a situation that may very well be detrimental. The main takeaway is to ensure a company power of attorney is in place to prevent delays and complications in decision making if the director is suddenly incapacitated.
A real world example is a client that we recently had only this week, who is the sole director of her company. She has signed a contract to sell a property and has now lost capacity. Not great - the contract is now going to sit in limbo until QCAT can appoint someone to manage the company's affairs.
If a company power of attorney was already set up, guess what? Yes, that's right, this would not be a problem for this client.
Who should consider a company power of attorney?
This is especially critical for sole directors, providing reassurance their business can continue running in their absence.
A company power of attorney functions similarly to an enduring power of attorney, allowing the principal to specify when it becomes effective, typically triggered by the director's incapacity.
Is a company's power of attorney relevant for companies with multiple directors?
Absolutely. A company power of attorney remains significant in such scenarios.
As per the Corporations Act 2001 (Cth), a company with multiple directors needs signatures from either two directors or a director and a secretary. If one director becomes incapacitated or unavailable, their corporate attorney can step in and sign on their behalf. Having the ability to sign documents is essential for a smooth business operation.
Without this capability, a company could face considerable disruptions. Numerous documents often require director signatures, including employment agreements, sale contracts, supplier agreements, and tax filings.
How to select the right power of attorney for your company.
Anyone appointed in this role must be over 18 and deemed trustworthy and capable. It's important to select someone who will prioritise the company's best interests and maintain accurate financial records. They must avoid conflicts of interest, meaning they cannot act for personal gain without the company's permission.
Sole proprietors may opt to designate a trusted family member or friend with the business. Alternatively, hiring a professional advisor such as a lawyer or accountant is an option, although this may involve considerable fees. This choice often ensures that experienced professionals make sound financial and operational decisions that benefit the company.
Not everyone possesses the necessary skills to manage another person's business. The decision ultimately depends on the nature of the business and the preference of the director/s.
So there you have it guys.
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George Sourris. Empire Legal.
If you have any questions, you can email me: george@empirelegal.com.au.
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Ladies and gentlemen, please keep in mind that all advice is general in nature and does not constitute legal advice. This is authorised by George Sourris, Empire Legal, Brisbane, Queensland, Australia.
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Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice.