Does Your Business Need a Power Of Attorney?
Some business persons may need a power of attorney while others can get by without one. But which type of business would it benefit the most?
Opinions expressed by Entrepreneur contributors are their own.
As a business person, you may have seen the term "durable power of attorney" in several situations. Power of attorney is a strange term because it's not immediately clear what powers an attorney for the business may have. Some business persons may need a power of attorney while others can get by without one. But which type of business would it benefit the most? Here, we'll look at what types of power of attorney exist and what circumstances a business owner may need each of them in.
What is Power of Attorney?
The Consumer Financial Protection Bureau (CFPB) defines power of attorney as a legal document that grants someone else the authority to act on your behalf. Signing a power of attorney allows the person noted in the form to conduct business as if they were you. The person mentioned in the document is called the "agent" or sometimes the "attorney-in-fact." The latter term is confusing because the agent doesn't necessarily need to be an attorney.
Power of attorneys are flexible, and a skilled lawyer can help you limit the things that your agent is allowed to do. Similarly, you may have your power of attorneys split up among multiple people, each with their own responsibilities and the ability to do business on behalf of you or your company. Each of these power of attorneys can be in effect at the same time, granting you several agents to help you perform the tasks that your business needs to do. Three main types of power of attorney exist:
1. Financial Power of Attorney
Investopedia mentions that financial power of attorneys allow an individual to deal with the financial responsibilities and functions of the principal (the person who signs the document) if the principal can't do so themselves. You may require financial power of attorney for an agent when you:
Ø need to delegate operation of your business
Ø hire lawyers and need to make decisions for lawsuits
Ø file and pay taxes
Ø need to conduct transactions with banks and other financial institutions
Ø need to deal with your investment portfolio, and retirement plan
Ø enter a contract
Ø buy or sell real estate or different types of property
Ø use your assets to pay for your living expenses
Financial power of attorneys are flexible as to when they start and end as well. They may come into effect the minute they're signed, or they may have set start and end dates prescribed by the principal. In many cases, business owners sign financial power of attorneys over to their spouses when they become incapacitated so that they can have someone they trust managing their finances when they're unable to do so themselves. Even if you sign a financial power of attorney to your spouse, many states require you to become incapacitated before the responsibilities of the power of attorney transfer to your spouse. This specificity ensures that you don't have to worry about your spouse taking control of your finances unless you're unable to.
2. Special Power of Attorney
Special power of attorney is flexible but extremely narrow in scope. As a business owner, there may be times that you need to get something done on behalf of the company, but can't be there yourself because of other responsibilities. A special power of attorney is a document that allows a particular agent to conduct business on your behalf relating a specific and clearly outlined event, such as opening a bank account, settling a lawsuit, or signing a contract. A special power of attorney, according to Yahoo Finance, is also referred to as a limited power of attorney.
3. Healthcare Power of Attorney
If you're stuck in the hospital and can't communicate because you're incapacitated, a healthcare power of attorney grants someone the ability to make medical decisions on your behalf. It's important when choosing someone for your healthcare power of attorney that you pick an individual close to you who will know what your wishes are if you can't consciously make them known. Most times, it's a close family member or a spouse, but at other times, individuals may choose a close friend and confidante to be their healthcare power of attorney.
It's important to note that a healthcare power of attorney isn't the same as a living will. A living will focuses on your preferences for healthcare treatment. These directives include when do-not-resuscitate operatives apply, and other religious oh philosophical beliefs that you may want to be respected even if you can't say so. Healthcare power of attorney is more flexible and leaves the decisions regarding healthcare to the agent. Where a living will relates to end-of-life decisions only, healthcare power of attorney applies in all medical situations.
Durable Power of Attorney
Typically, a power of attorney comes into effect when you become incapacitated and ceases to function once you can make your own decisions. However, there are ways to extend a power of attorney to times when you aren't hindered by including a clause that allows the agent to make decisions on your behalf even when you can do so yourself. By having this clause, you create a durable power of attorney. Durable power of attorney is also called enduring power of attorney and may be applied to any of the types mentioned above. Thus a durable financial power of attorney can make decisions on behalf of a business owner when they aren't incapacitated.
Choosing an Agent
The agent you select for your power of attorney in a business should be someone you can trust wholeheartedly. They should understand and follow through with your instructions and should be aware of how you would like the company to run in your absence. Your choice should reflect on the skills and abilities they already have. It's not a good idea, for example, to appoint a family member your agent to operate the business when they've never shown any aptitude for doing so in the past.
The agent is required to act in your best interest. They are also required to keep accurate records and maintain both cash and property assets that they own separate and apart from what they control, thanks to the power of attorney. If your agent misuses power of attorney, you have the option to take them to court. However, obtaining a judgment against a power of attorney will take a long time, and there is no guarantee that you will collect any reimbursement from the agent if there is no money or property left in your name. The best option would be to remember that your power of attorney should be someone you trust wholeheartedly who isn't going to backstab you when they get the chance. Even so, there's no accounting for others' behaviors.
Do You Need a Power of Attorney?
The whole question boils down to your business structure and how important it is to have someone at the helm to run it properly. If you become incapacitated or fall unconscious, you would like someone to be in control of your company, lest it veers off course. Power of attorney brings a lot of protections that will help a business deal with everyday operations while you're unable to healm the company. If your business is an LLC or corporation, you may not need a power of attorney for the company, but rather for your own estate planning and management. You should explore options for each of the types of power of attorney, and have them at the ready if the unthinkable happens. It's far better to be prepared than to leave things to chance.