What is a Company Power of Attorney?
A Company Power of Attorney is a legal document put in place by a company to appoint a person, (or persons, or even another company), to act on its behalf if the director loses mental capacity (eg: through sickness or an injury, such as a stroke or a head injury) or dies.
An Australian company has legal capacity and the same rights as a natural person. Its Directors function as the mind of the company and make decisions on its behalf and is said to act through its Directors where Company Directors sign documents and make decisions for the company.
- The Company Power of Attorney (CPOA) provides continuity of company affairs and good stewardship. This is especially important if the directors are sick, missing, or otherwise unable to act. The company loses its ability to act without a functioning director and is then a ship without a rudder.
- This is a particularly important requirement for Sole Directors of a company who may not yet have a Will in place to transfer controlling shares in the business.
In contrast, a human Power of Attorney (POA) (enduring or medical) only appoints humans to act on behalf of another human.
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.
When to establish a Company Power of Attorney?
- 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)?
You need a company power of attorney
Under the Corporations Act, a company is allowed to appoint an attorney and it is not necessary to have a specific power in the Company constitution to do so.
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, you must 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.
The Difference between Personal Estate Planning & Business Estate Planning
Personal Modern Estate Planning is about putting legal documents in place today where you nominate ahead of time, a person to act on your behalf later, if you cannot make decisions, due to an unexpected sickness, illness or absence. Business Modern Estate Planning is about building a business continuation plan if the business owner cannot make decisions, due to an unexpected sickness, illness or absence.
Modern Estate Planning for Business is business structure specific so the type of business structure in place determines whether personal estate planning documents or company estate planning documents is needed to build the business continuation plan.
- Sole Traders and Partners are usually seen as one-and-the-same with the business structure. This means their personal control of the business can usually be exercised by others if needed through the use of a Power of Attorney or a Power of Enduring Guardianship document.
- Company Directors are seen as separate-and-distinct from the business ownership. This means the power of a company Directorship cannot be exercised by others or transferred or 'gifted' by a Will, a personal Power of Attorney or Power of Guardianship document.
All these documents are available to be built and purchased through our Sapience Secure Customer Portal with the assistance of your financial adviser.
This is not a decision you can continue to put off
It can cause real distress and financial hardship to your family if you are the sole shareholder or 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 legal documents in place, so you can maintain your competitive advantage at a time of uncertainty.
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.
Pro Tip: 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 company directors has no bearing on a Corporate Power of Attorney that continues until revoked.
How we can help
A Company Power of Attorney is an important part of protecting your business and your family, from the business. If you're the sole director and shareholder of a private company, you should have a backup plan in place if you lose the mental capacity to continue to make decisions (or even die)?
- We can supply this legal document.
Contact us for a confidential chat about your needs.
Related: Key Legal Documents for Business Owners
- Non-Disclosure Agreements (NDA)
- Company Power of Attorney (CPO)
- Partnership Agreements
- Shareholders Agreement
- Unitholders Agreement
- Loan to Company Agreement
