Why every sole director of a company needs a Company Power of Attorney

What is a Company Power of Attorney, and why every sole director of a private company needs one

Essential reading for all Company Directors

  • Do you own and operate a business under a company structure?
  • Are you the sole director and shareholder of your Pty Ltd. trading or operating company?
  • Are you the sole director and shareholder of a company that acts as a Corporate Trustee for a Trust or a Self-Managed Super Fund (SMSF)?

If so, you need to know this…

Read in this article

Sole directors and shareholders are at the greatest risk

If you're the sole shareholder and director of a private company, have you thought about what will happen to your business if you lose the mental capacity to make decisions, or unexpectedly die?

  • Depending on your company constitution, a director role is usually automatically vacated on a director’s incapacity or death.
  • The office of the company director is not one that can be ‘gifted’ or simply passed on to someone else. Most company constitutions require the other directors to appoint a new director or the passing of an ordinary resolution ie: more than 50% of the shareholders.

You can see how this is becoming more complicated.

The good news is there is a simple solution or two and we can help you with them both.

Sole directors and shareholders need this...

You probably already know, a Personal Power of Attorney is a legal document where an individual can appoint someone else to make key administrative and financial decisions for them if they themselves were ever to be unable to make important decisions due to sickness, or injury. An Enduring Power of Attorney (or Guardianship) is needed to make medical and lifestyle decisions for another person.

  • If you’re a Director of a company, you may not know that both a Power of Attorney or Enduring Power of Attorney (or Guardianship), does not extend to cover the duties of a Company Director.
  • A Company Power of Attorney is required to protect the needs of a Company.

The Law: The Corporations Act 2001 (Cth) requires a company to have at least one director. Without a director, a company in breach of the Act, and the business may not be able to operate properly. For these reasons alone, you need to have a plan in place if you are not able to act as a director of your company.

What is a Company Power of Attorney?

A company acts through its directors and Company Directors sign documents and make decisions for the company.

A Company Power of Attorney is a legal document where a company appoints a human (or another company or a combination of people and companies) to act and sign documents on the company’s behalf. In contrast, a human POA (enduring or medical) only appoints humans to act on behalf of another.

Insight: A Director is the decision maker of a company and this role cannot be inherited, gifted, or addressed under a personal Power of Attorney.

When does its need arise?

Depending on your company constitution, a director’s role is usually automatically vacated on a director’s incapacity or death. In these situations, you need to have someone ready and capable of taking control of the company immediately.

  • A Director is the decision maker of a company and this role cannot be inherited, gifted, or addressed under a personal Power of Attorney.
  • If you're the sole director and shareholder of a private company, do you have a backup plan in place if you lose the mental capacity to continue to make decisions (or even die)?

Failing to have a documented plan for this eventuality will leave your company, its financial value, and your family vulnerable.

FAQ

If a company director dies, does the Company Power of Attorney stop working?

No. It does not.
A Company Power of Attorney is given by the company, and not by the director. Directors come and go, move on and even pass away. Unlike a personal Power of Attorney, the movement of directors has no bearing on a Corporate Power of Attorney that continues until revoked.

Its time to take action on this simple problem

If you are the sole shareholder and director of a private company, it’s time you thought about what will happen to your business if you lose the mental capacity to make decisions or even pass away. If your Accountant or Financial Adviser hasn’t raised this question with you, you might need a new one.

Failure to plan for this eventuality can affect the financial viability of your assets and leave your family vulnerable – so, it is something you need to turn your mind to today.

Two easy solutions to the problem

1.  Make a Will (slow process)

The office of the company director cannot be gifted.

What can be handed down in your Will are the ownership of your shares in the company to the person who is to control the company. The new shareholder will then be able to vote to appoint themselves as director. But this is a long process.

  • If you do not have a Will and you are the sole shareholder and director of a company, the company will be unable to be managed for at least several months following your death while your family applies for and waits to be granted Letters of Administration before they can deal with your estate.
  • Put simply, during this time there is no one who is legally able to conduct the business of the company and do all the things a director of the company does.

Even with a Will, the grant of probate (Probate is the Supreme Court's recognition that a will is legally valid and can be enforced) is not a particularly speedy process and could leave you waiting many months for that formal authority to pass shares to the intended recipient.

So what else can you do?

2.  Document and appoint a Company Power of Attorney (fast process)

Just like a personal power of attorney, this is a legal document made by a company, in its capacity as a legal person, that appoints an individual (or company) to act and sign certain documents on its behalf.

  • This means if a sole director of a company loses capacity or dies, there is still someone capable of running the company until a new director can be appointed.

Remember: The office of the director is not one that can be ‘gifted’ or passed on to someone else.

This is not something you can continue to put off

It can cause real distress and financial hardship to your family if you are the sole shareholder a director of your company and there is no one authorised to direct or manage your business if you lose legal capacity or die.

While things are being sorted out, the saleable value of your asset may decrease, contracts lost, and competitors are given time and opportunity to take advantage.

Make sure you have the necessary documents in place, so you can maintain your competitive advantage at a time of uncertainty.

How we can help?

If you own and operate a family business, it’s time to think about what happens to the company if something happens to you.

  • Are you the sole director and shareholder of your operating or trustee companies?
  • Is there anyone else who is legally authorised to make decisions for the company, sign documents or manage the bank accounts?

Make a Company Power of Attorney, then get your own Will and Modern Estate Planning documents sorted today.

We have a process to do that, and we’d love to help you out with that too.

Buy this Legal Document through the Sapience Customer Secure Portal

Company Power of Attorney - part of your backup plan for sole director and shareholder of private companies

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author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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