Power of attorney is a legal document that grants an individual (the agent) the power to make decisions on behalf of another (the principal). In most cases, power of attorney is encountered during estate planning. Indeed, most people will understand how general and medical power of attorney works, but they might not have an understanding of how power of attorney can and should be used in business.
In this article, we’re going to look at what power of attorney is and how this can translate into benefits for businesses. Take a look below now to learn more.
Remember that a solicitor can give you advice on power of attorney, or you can research online for free medical power of attorney and general power of attorney guides.
What is a Power of Attorney?
A power of attorney is a document that allows an individual the authority to make decisions on behalf of another regarding their medical care, finances, and legal matters. There are many types of power of attorney, and each type grants different kinds of authority. Almost all power of attorney types become void upon the incapacity or death of the principal, but some types, like durable power of attorney, are used specifically when a person becomes incapacitated.
For businesses, there are types of power of attorney that grant the agent permission to control real estate or deal with legal matters on behalf of another only for very short periods of time.
Common power of attorney types for businesses include:
- Durable Power of Attorney: This might be used upon the declining health of a founder or CEO. In this instance, a relative or trusted employee would likely be given authority to take over the running of the business to ensure its continuity.
- Limited Power of Attorney: This kind of power of attorney is restricted to certain actions. Generally, portfolio managers often use a limited power of attorney to continue to work with planned investments, and they often do not need to contact the principal before taking action.
- Special Power of Attorney: This kind of power of attorney is used when the principal cannot be present for a specific task or transaction. In this case, the principal would give authority to their agent to perform the task for them. It can be used if the principal is out of the country and in other similar circumstances.
- Financial Power of Attorney: This allows the agent authority over financial transactions for the business and may also be used in cases of incapacity to ensure the continuity of the business.
Benefits of Power of Attorney for Business
There are many benefits to using power of attorney within your business framework. These include the following.
- Continuity: One of the biggest benefits of power of attorney is that it allows for continuity of operations. If the boss suddenly becomes incapacitated, then you have peace of mind that someone has the authority to continue operations.
- Flexibility: Options like limited and special power of attorney mean that the CEO or manager doesn’t always need to be present for simple contract signing or financial transactions. Instead, they can take time away and still have their operation run smoothly.
- Expertise: Limited power of attorney also grants access to a person with expertise, allowing them to handle investment portfolios in the way that they see best without needing to get the opinion of the principal.
- Risk management: Power of attorney mitigates risk and ensures you’re covered in cases of emergencies or unexpected absences.
- Legal and financial protection: A power of attorney is a legal document, which means that provided it is drafted well, it offers legal and financial protection by setting out the scope of authority granted to the agent and ensuring that they act only within these bounds.
- Facilitation of transactions: Simple transactions can easily be organized through the use of agents, including things like executing documents and signing agreements. This means there can be lots of transactions going on at once without the need for the principal to be available for every one of them.
When You Might Need a Power of Attorney in Business
Instances when a business might use a power of attorney include:
- In the absence of the business owner
- To delegate authority
- For financial management purposes
- For legal representation in contracts and negotiations
- For business continuity planning
- For real estate planning
- In investment management
In general, power of attorney is about peace of mind for businesses. It ensures that risks are mitigated and that should someone need to have authority for specific matters, they likely already do.
Final Thoughts
Power of attorney covers a broad range of matters and is used in many areas, including business matters. Businesses employ power of attorney for a number of reasons, and many of them are used to mitigate risk and maintain peace of mind.
Remember, when drafting a power of attorney for your business, be clear and precise when setting out the scope of authority to ensure your business is always protected.