The Importance of Drafting a Power of Attorney for Your Business

The Value of a Power of Attorney in Business

Many business owners, much like individuals who postpone writing a will, avoid drafting a Power of Attorney. This is often due to a superstitious belief that preparing for potential problems will attract misfortune. However, it is important to remember that drafting a Power of Attorney does not suggest that you will be unable to manage your business. Instead, it is a sign of good planning.

Imagine a scenario where an accident or illness causes you to lose mental capacity temporarily. Without a Power of Attorney, your family, colleagues, and the courts may end up in a dispute trying to resolve the situation. Advance planning can help minimize such problems.

Protecting Your Business During Extended Absences

If you plan to be away from your business for an extended period, a Power of Attorney can be particularly useful. In the absence of an owner, the potential for employee fraud or theft increases. By appointing someone you trust to manage your business, you can protect your interests.

Before drafting a Power of Attorney, it is advisable to consult a lawyer to discuss your unique situation. However, the following considerations are generally applicable:

Key Considerations When Drafting a Power of Attorney

• You must be "of sound mind" when you draft a Power of Attorney. You can revoke or modify it, but you must still be deemed to be of sound mind. The drafting or amending of Powers of Attorney must be witnessed.

• By drafting a Power of Attorney, you give the "donees" the legal right to carry out transactions on your behalf. You can specify the powers you are allocating, which typically include the right to sell or purchase assets, make bill payments, manage debts, and handle various investments.

• You can usually appoint two people to have power of attorney and a substitute in case something happens to one of the first two. Some advisors recommend appointing three donees to jointly manage your affairs. Ideally, one donee should be a family member or friend, another should be someone connected to the business, and the third should be the company's accountant.

• Be clear about the powers you are giving the donees when drafting the document. Avoid "gray areas" or areas that could be open to interpretation.

• Ensure that at least one of your donees knows where the Power of Attorney document is kept.

• Powers of Attorney can be Continuing or Limited. Continuing Powers of Attorney usually take effect from the date of signing and remain in effect after a person becomes incapacitated. Limited Powers of Attorney give the donee authority to act only under certain circumstances, such as real estate transactions or complex investments.

In conclusion, drafting a Power of Attorney is a crucial step in protecting your business. It ensures that your business can continue to operate smoothly, even in your absence. For more information on this topic, consider consulting resources such as The Balance or Investopedia.