Although powers of attorney are often associated with losing mental capacity in later life, they in fact serve a range of purposes and are particularly useful in commercial and business contexts.
If you need to allow someone to continue running the business in your absence, or to provide for a scenario in which you were no longer actively involved in managing the business, there are various reasons why you may wish to consider appointing a power of attorney. They are also commonly used in corporate transactions where for practicality one person is appointed attorney on behalf of a wider group of individuals.
What is a power of attorney?
So what is a power of attorney and why is it relevant? A power of attorney is a legal document that allows someone else to act on your behalf in making decisions for you when you are unable to. It can either be used to delegate personal financial and property decisions, or in a business context (both for routine and one-off transactions).
Note that in this article we are not primarily considering powers of attorney used in the context of managing one’s affairs in later life. An ordinary power of attorney is used whilst the donor still is capable of making decisions, but chooses to give another legal power to make financial or business decisions on their behalf. Lasting powers of attorney (LPA) become valid only once someone loses their decision making capacity and is no longer able to act on their own.
When might I use a power of attorney for business transactions?
Avoiding disruption to business during absence
By appointing an attorney to act on their behalf, any necessary business decisions can continue to be made even during a director’s absence. This is useful when they do not have access to documents or internet, such as during holidays, travel or illness. The power of attorney can be absolute (i.e. enabling the attorney to make all decisions and enter into any documents that the director might make) or, more commonly, can be limited in its scope to address known or likely issues/documents that will need to be resolved in the director’s absence.
Transactions involving multiple shareholders
During the sale of a company or other corporate transaction, there are multiple documents to be signed throughout the deal. Where there are many shareholders involved, often in different locations or even different countries, this can be a lengthy and complex process – especially where documents are being executed as deeds and each signature requires a witness.
In order to speed up the process, the shareholders may appoint power of attorney to one main shareholder, who can then sign the various documents on behalf of the others. All shareholders still read and approve the documents, but are not each required to sign them physically.
Regular commercial contracts
Powers of attorney can also be useful for companies that regularly enter into commercial contracts, where either (i) the directors may be unavailable or (ii) senior managers are to be given authority to sign certain documents on behalf of the company.
In this scenario any new supply contracts or NDAs can be signed in the director’s absence by enabling a member of senior management to sign where they would not otherwise be authorised to do. The power of attorney can be produced to the counterparty if the individual needs to prove that they have authority to enter into the agreement on behalf of the company.
The contents of this article do not constitute legal advice and are provided for general information purposes only.
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