A simple question for Business Owners and SMSF Trustees
Do you run a business under a company structure? Are you the sole director or shareholder? Perhaps you're the sole director and shareholder of a company acting as a Corporate Trustee for a Self-Managed Super Fund (SMSF)?
If you have answered 'Yes' to either of these questions, chances are, you absolutely need a Company Power of Attorney.
Read in this article
- Make it part of your Business backup plan
- Make it part of your SMSF backup plan
- FAQ's
- I already have a personal Enduring Power of Attorney set up. Doesn't that cover my business interests and allow my attorney to run my company if I can't?
- I'm the sole director and shareholder of my company. Why is it so critical for someone like me to have a Company Power of Attorney?
- So, how does a Company Power of Attorney actually work in practice? Who can I appoint?
- What happens if I'm incapacitated and I don't have a Company Power of Attorney? What's the worst-case scenario?
- Is setting up a Company Power of Attorney a complicated or expensive process?
- Sources & Further Reading
Make it part of your Business backup plan
From mild strokes through to heart attacks, Insulin comas, car accidents, head injuries or whatever else life throws at us - if you're the sole director/shareholder of a private company, you must have a backup plan in place for if you lose the mental capacity to continue to make decisions for the company or risk it becoming 'locked' and unable to function.
When that happens, it's usually only a 90 day window before a creditor launches a wind up application - sooner if you employ staff and pay super.
Important: The role of Company Director is one that cannot be gifted to another or transferred through a Will nor can it be exercised under a Personal Power of Attorney document.
We're seeing many requests for business Capacity Statements for businesses tendering or applying to become part of a a bigger supply chain, to verify that the business has a business recovery plan in place - Keyperson Insurance and a Company Power of Attorney for a Sole Business owner/Shareholder, is a standard part of that package.
Make it part of your SMSF backup plan
The same is true for SMSFs that have a company acting as the Corporate Trustee for the SMSF. A single member SMSF/Trustee is an unacceptably high risk if there is no Company Power of Attorney in place. This is because when you have lost the ability to make legal decisions (due to sickness or injury) you cannot legally make the decision to give another person that power.
"At least three to four times a year we're contacted by a distraught family member of a sole Director/Shareholder company, or sole Trustee SMSF, where the director hasn't bothered to put a Company Power of Attorney in place, and 'the company is locked' and facing financial disaster. It's upsetting to tell people, it's too late". Drew Browne Advisor
Failing to have a Company Power of Attorney already in place, for this one of life's eventualities, will leave your company, your SMSF, and your family vulnerable.
FAQ's
Your Company Popwer of Attorney Questions, Answered. Here’s a quick summary of what you need to know about When do you need a Company Power of Attorney?.
I already have a personal Enduring Power of Attorney set up. Doesn't that cover my business interests and allow my attorney to run my company if I can't?
That’s the most common and dangerous assumption we see, and it’s crucial to understand the distinction. Your personal Power of Attorney allows someone to manage your personal affairs and assets—things you own in your own name. However, a company is a separate legal entity. Your directorship is an office you hold, not a personal asset you own. Therefore, your personal attorney has no legal authority to step into your shoes as a director and make decisions for the company. Only a properly executed Company Power of Attorney can grant that specific authority.
I'm the sole director and shareholder of my company. Why is it so critical for someone like me to have a Company Power of Attorney?
As a sole director, you are the entire decision-making engine of your company. If you become incapacitated through illness or injury without a Company Power of Attorney in place, the company is effectively paralyzed. No one, not even your personal attorney or your spouse, has the legal authority to pay staff, sign contracts, pay suppliers, or even operate the company's bank accounts. The business can be frozen, potentially leading to its collapse, simply because there is no one legally appointed to act in your place as director.
So, how does a Company Power of Attorney actually work in practice? Who can I appoint?
A Company Power of Attorney is a formal legal document where the company itself appoints an individual to act on its behalf and exercise the powers of a director. This is typically done in anticipation of the director becoming unable to act. You would appoint a trusted and capable person—often a spouse, a senior manager, or a professional advisor—who understands your business. The appointment is made by the company, following the rules in its constitution, and gives that person the legal standing to step in and keep the business running smoothly during your absence.
What happens if I'm incapacitated and I don't have a Company Power of Attorney? What's the worst-case scenario?
The worst-case scenario is, unfortunately, a reality for many unprepared businesses. The company's bank accounts are often frozen as soon as the bank learns the sole director is incapacitated. Staff can't be paid, crucial contracts can't be signed, and suppliers go unpaid. The only way to solve this is a lengthy and expensive application to the Supreme Court to appoint a new director, during which time the business is completely vulnerable and may fail. It’s a devastating and entirely avoidable situation.
Is setting up a Company Power of Attorney a complicated or expensive process?
It's far less complicated and expensive than the alternative of court action! The process involves a legal professional drafting the specific deed, ensuring it aligns with your company's constitution and the Corporations Act. While there is a cost involved, it should be viewed as a critical business continuity insurance policy. The upfront investment is minor compared to the immense cost, stress, and potential loss of the entire business if you were to become incapacitated without one.
Sources & Further Reading
- Corporations Act 2001 (Cth) s 124 - Legal Capacity and Powers of a Company: This section of the federal legislation establishes that a company has the full legal capacity and powers of an individual, which is the foundational principle allowing it to grant a power of attorney.
- Corporations Act 2001 (Cth) s 126 - Agent Exercising a Company's Power: This is a crucial section that directly outlines how a company's power can be exercised by an individual (an agent or attorney) acting with the company's express or implied authority. It confirms that this can be done without a common seal.
- ASIC - Company Officeholders: The Australian Securities and Investments Commission (ASIC) provides this information sheet detailing the roles, responsibilities, and legal obligations of company directors and secretaries under the Corporations Act. This is essential context for understanding who has the authority to run a company.
- Powers of Attorney Act 2003 (NSW): This is an example of the state-level legislation that governs the creation and operation of powers of attorney. While the Corporations Act allows a company to grant the power, the specific form and requirements of the Power of Attorney document itself are determined by state or territory law.
Call us today on 1300 137 403 or email us here for a no-obligation private chat about your situation.
Drew 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.
