Why You Should Have A Power Of Attorney When Owning A Business
Most business owners work hard building a company for retirement, their children’s future or legacy, or just to sell it on the right time. However, how do you prepare your business or company if something happens to you? Are you ready? Do you have an estate plan in place? It’s time to consider a power of attorney or POA when owning a business, which is a legal document used to appoint someone to make business decisions on your behalf.
Here are several reasons why having a POA will be to your advantage:
Fulfill Your Wishes and Protect Your Best Interests
While your adult children, spouse, or closest relatives can make decisions when something happens to you, disputes and misunderstandings may arise because of unclear or wrong perceptions about what you want for your business.
For your peace of mind and to avoid disputes, a power of attorney is a temporary solution when you’re unable to make decisions for your business. It will ensure that you designate someone or a power of attorney “agent” who can make sound business decisions to achieve your business goals.
Here are the qualities of a person or agent you would like to act on your behalf:
- Trustworthy: Choose a person to whom you can entrust your business regardless of its status.
- Dependable: Choose a POA agent your successors can depend on.
- Management Skills: It’s sensible to leave your business to someone who has excellent management skills.
- Good Relationship: Choose someone with whom you have a good relationship for many years, and someone who knows you well.
Define a Clear Scope of Authority
A power of attorney or durable power of attorney appoints a person to act on your behalf with a clear scope of authority. It’s essential to clearly define the decisions a POA agent is authorized to make because you don’t want any questions about whether the decisions are binding or not.
Here are the good-to-know facts about a power of attorney:
- The person who acts on your behalf doesn’t necessarily or automatically become your legal representative.
- The purpose of a POA is to allow a person to make decisions only under extraordinary circumstances.
- A business POA becomes effective when the business owner is incapacitated or unable to manage the business due to an accident, old age, or mental illness.
Integrate POA with Business Succession Planning
It’s crucial to have a POA integrated with a business succession plan, whether you want to pass your business as part of your estate or to eventually sell it. Business succession planning is a process of thinking about and deciding upon all aspects of your business that should go together with your estate plan.
Here are the issues addressed by a POA and business succession plan:
- The person who’ll take care of your daily business operations, such as supervising billing and invoicing, if you’re incapacitated or you suddenly die.
- The people who will own your shares or your business, like your children or spouse.
- The person who will carry your business responsibilities.
- The person who will address the tax implications related to the transfer of business ownership.
- Method of transferring your business intellectual capital.
Keep in mind that open communications should be carried out with your successors to ensure full awareness and accessibility of your business systems. Also, your successors should be capable of running your business and understand your vision.
Manage Business-Related Financial Transactions
Based on the scope and nature of the POA, the person who acts on your behalf is responsible for making some or all business decisions, including managing business-related financial transactions and running your business.
Here are the things you need to know about a POA for a business account:
- You can grant a POA to a trusted person who will run your business or just part of it, like signing checks from your business account.
- It’s important to ensure that your banks have the POA on file, including the main office and the branch where you conduct most of your business transactions.
- Anyone you choose to act on your behalf under a business account POA should be trusted, reliable, and respect all your wishes. The person should keep records of all transactions and give you periodic updates.
- When you designate other people who also act as POA agents, checks and balances cannot be performed on your business operations together.
Conclusion
While a power of attorney is important when you own a business, remember that it can be a short-term and long-term or temporary or permanent solution. You may combine a POA with your business succession plan and estate plan to make sure that the nature, scope, and limitations are clear and fully understood by the person who will act on your behalf.
