Some business owners may need a power of attorney (POA). However, what type would be of benefit the most is the question. This article looks at the types of power of attorney and in what circumstances a business owner may need each of them.
Entrepreneur’s recent article titled “Does Your Business Need a Power Of Attorney?” reports that the Consumer Financial Protection Bureau (CFPB) defines power of attorney as a legal document that permits a trusted agent the authority to act on your behalf. Accordingly, signing a power of attorney allows the business owner to authorize another person to conduct business in his stead. The person designated in the document is called the "agent" or sometimes the "attorney-in-fact." There are three main types of power of attorney:
Financial Power of Attorney. This document allows the agent to deal with the financial responsibilities and functions of the “principal” (the person who signs the document) if the principal is unable to do so themselves. Some functions for the agent of a financial power of attorney include the following:
- Delegation of the operation of your business
- Hiring an attorney and making decisions in lawsuits
- Filing and paying taxes
- Conducting transactions with banks and other financial institutions
- Making decisions on your investments and retirement plan
- Entering into a contract
- Purchasing of selling real estate or different types of property; and
- Using your assets to pay for your living expenses.
Special Power of Attorney (or Limited Power of Attorney). A business owner may need to accomplish a task for the company if they’re unable to be there because of other responsibilities. This document permits a particular agent to conduct business on their behalf, concerning a specific and clearly outlined event, like opening a bank account, settling a lawsuit, or signing a contract.
Healthcare Power of Attorney. An individual who is incapacitated and can't communicate can use this to permit an agent to make medical decisions on their behalf. Note that a healthcare power of attorney isn't the same as a living will. A living will focuses on a person’s preferences for healthcare treatment, such as do-not-resuscitate and other religious or philosophical beliefs that they want to be respected. A healthcare power of attorney is more flexible and leaves the decisions regarding healthcare to the agent. A living will concerns end-of-life decisions only, where the healthcare power of attorney applies in all medical situations.
Durable Power of Attorney (DPOA). This usually becomes effective when a person is incapacitated and stops once they’re able to make their own decisions. However, a durable power of attorney or enduring power of attorney may be applied to any of the types mentioned above. As a result, the agent can make decisions on behalf of a business owner when they aren't incapacitated.
A DPOA provides considerable protections that will help a business deal with regular operations while the owner is unable to lead the company. If the business is an LLC or corporation, a power of attorney for the company may not be needed. However, it’s wise to have one for your own estate planning. Ask an experienced estate planning attorney about the types of power of attorney and how they might help your business.
Reference: Entrepreneur (Nov. 3, 2020) “Does Your Business Need a Power Of Attorney?”