The importance of a corporate power of attorney in companies owned by a sole director

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As you built your business, you probably gave little thought to how it would operate without you. But what if you were to take a well-deserved holiday and be unreachable in the Maldives? Or alternatively, what if through illness or if you became incapacitated, you became unable to do all that you have done before? What if you died?

If you are a sole director, your business might be unable to function. If your family depends on the income from the business, they might suffer too. So much work for so many years, all brought to naught.

The solution is a corporate power of attorney. In ensuring that you have a corporate power of attorney, your company could continue to pay bills, meet payroll, continue contracts and eventually be wound up without too much disruption, if necessary.


What you can do with a corporate power of attorney


As a bit of basic law, directors are the people who make decisions for a company. A sole director is essentially the only person who can do that. If a sole director cannot act for some reason, the company will come to a standstill. Under these circumstances, the shareholders can appoint a new director. But if the sole director is also the sole shareholder, as often happens with new or closely held businesses, the problems compound. By the time a court can intervene to sort matters out, the company may be out of business.

This is why every company should consider having a company power of attorney in place to ensure that a representative of the sole director can act to continue the company’s affairs, if required.

A corporate power of attorney may grant the ability to act in as broad or narrow capacity as seems appropriate. For example, a company might grant:

  • a power of attorney limited to specified routine transactions, such as payment of invoices or  the execution of certain bank documents;
  • a power limited to a specific transaction, like the sale of a building or the acquisition of a competitor; or
  • a general power of attorney that would enable a representative to do anything that the sole director might do, were it not for some intervening emergency. This might allow a business to continue running until a succession plan could be put in place.


Why this is different to an individual power of attorney

An individual power of attorney is not a substitute for a corporate 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 individual attorney cannot sign documents on your behalf in your capacity as director of a company.

In a similar fashion, your Will (assuming that you have one) is not an efficient way to transfer ownership of your company to family or other heirs. The person you have appointed as your executor would ultimately deal with your shares in accordance with your wishes, and presumably appoint a new director who could act for the business, but it would happen slowly.

If you were to die without a Will, the company would have no person authorised to manage its affairs until Letters of Administration were granted.  This process is cumbersome and may also take considerable time.

Depending on the individual, financial arrangements you have made to deal with disability or death is not an adequate way to deal with the management of your company, especially at a time when your customers and clients might need reassurance that the business could continue.


Let’s talk about succession planning?

Of course, succession planning can sometimes be considered the elephant in the room. If you are new to the idea of a corporate power of attorney, it may also be true that you are only beginning to think about how to hand your business off to other hands.  Perhaps you always intended that it stay in the family. Perhaps you see yourself as a serial entrepreneur and had planned to sell it as a going concern to finance new ventures. Maybe the assets are so valuable that the best course would be to liquidate them and wind down the business. These are all valid choices, but the task of positioning your business to accomplish this plan should begin several years beforehand.

The attorneys at Owen Hodge Lawyers would be happy to help you with contingency planning for your business, including a corporate power of attorney. Please call us at 1800 770 780 at your earliest convenience to schedule at consultation.


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