Think about a power of attorney: let your business run smoothly--with or without you.Few asset management tools are as important as a Power of Attorney ("POA"), especially when a business is involved. Simple to prepare, there is really no excuse for not having one.
Under a POA, someone (the "grantor") authorizes one or more persons (the "attorney(s)"), to make decisions for the grantor or to act on their behalf. This decision-making power can start immediately, or after the occurrence of a specific event. A common instance is when the grantor loses the mental or physical capacity to make their own decisions or take actions.
Attorneys can only be appointed when the grantor has mental capacity, so the sooner a POA is prepared and signed, the better. Once there are questions around capacity, it is often too late to create a binding document.
POAs come in a myriad of flavors. A business owner could set up a POA for general authority, or for just a specific task. This could mean anything from paying bills and dealing with banking, to buying, managing and selling property, controlling investments, preparing and filing taxes, or broad powers to operate the business generally. The possibilities are endless and can be tailored to meet the owner's needs.
Imagine your company is in the middle of a large property transaction. The deal is finally ready to close, but you have longstanding plans to leave the country for a family vacation. If you go on holidays, the deal may fall through. If you cancel the vacation, you will miss valuable time with your family. Having a power of attorney in place that allows someone to make decisions and sign documents on your behalf will allow the deal to proceed without cancelling your holiday. You can grant this power to anyone you see fit, such as business partners or a family member familiar with the business. You can also provide guidance to your attorney(s) so they are aware of how you would like matters to proceed in your absence.
POA's can also be time-limited for more flexibility. You can have the authority expire upon your return to Saskatchewan, for example. Of course, you can revoke a POA or change the terms anytime, as long as you have capacity.
For those who run their business closely with one or more partners, imagine an accident befalling one of your partners, unexpectedly leaving them unable to participate in day-to-day business operations. Keeping things running smoothly may prove to be difficult if your partner is the one who normally handles specific aspects of your operation. This is even more so when decisions require authorization from the other or both of you. These situations cannot be predicted and can cause major disruptions in any type of business transaction. At best, being unprepared will result in unnecessary stress.
Preparing a POA before an unforeseen circumstance is a small step that could save time and money, and provide certainty in day-to-day business operations. In the example above, a POA prepared prior to the accident, where the partners grant authority to each other or to someone else, will create confidence that the business will continue to operate efficiently, despite one partner's absence.
While POA's are extremely useful, there are a couple of limitations to remember. For one, they only handle assets. Personal decisions like health care choices are not covered by a POA. To deal with those personal items, consider an advance health care directive, sometimes called a living will.
Also remember that a POA does not strip you of your normal decision-making power, it only creates a clone. In other words, if you grant your brother a POA to deal with banking decisions, both of you have the ability to go into the bank and deal with your assets. Your brother's power starts immediately, unless you have made the POA conditional on a future event.
So why not always put a condition in the POA? It can cause problems. For example, most land registries will not accept a conditional power of attorney, since they don't want the responsibility of confirming the condition has been satisfied. Therefore, for maximum coverage you will want an unconditional POA. Since the attorney has the immediate power to deal with your assets, you will obviously want to choose your attorney very carefully. There are ways of protecting assets even with an unconditional POA that your lawyer can recommend, so get legal advice now and avoid future problems.
Alanna is a lawyer with WMCZ Lawyers - Mediators in Saskatoon.
Questions and comments on this article can be sent to her at firstname.lastname@example.org
Lawyer, WMCZ Lawyers-Mediators