A comprehensive estate plan should consider a power of attorney for all companies which an individual controls, either as director and/or a shareholder.
This includes where a company is acting as a trustee of a SMSF or a Family trust. An individual power of attorney gives your attorney(s) legal authority to manage your personal assets and financial affairs. A company power of attorney authorises a person or persons to act on behalf of a company and or sign certain documents on its behalf.
Why grant a corporate power of attorney?
Every company should consider having a company power of attorney in place to ensure continuity of company affairs should a director become unavailable due to incapacity or death. Powers of attorney are critical where there is a sole director and shareholder and also when there is a two director company. If a sole director is unavailable, the company could come to a grinding halt as no one is authorised to act on its behalf. Section 127 of the Corporations Act 2001 requires two directors or a director and a secretary of a company to execute documents unless the company is a sole shareholder and director company. This means that even for two director companies, if one person loses capacity or dies, the company is powerless to sign documents or enter into agreements as the law requires a minimum of two signatures. A company power of attorney can fix this problem.
Can I use an individual power of attorney for company matters?
No, an individual power of attorney is not a substitute for a company power of attorney. Even if you have granted a power of attorney to someone to manage your personal financial affairs, this does not extend to your company and the attorney cannot sign documents in your capacity as director of a company.
How does the company power of attorney relate to my will?
While after your death, your Executor will ultimately be empowered to deal with any shares you have in a company, this is only after Probate of the Will is granted. Probate of a will can take quite some time to obtain. A company power of attorney can be used to ensure the smooth operation of the company after the death of a director, but before the executor under the will has had the opportunity to administer the estate.
Consider this example
Hazel has a SMSF with a company as trustee. She is the sole shareholder and Director. Her Will appoints her children Liam and Isabel as executors. Hazel has arranged for the company to have a Power of Attorney appointing Liam and Isabel to act in the event of the death or incapacity of Hazel. As a result, Liam and Isabel can act immediately on behalf of the company without having to wait until they get Probate of Hazel’s Will (which could take 3-4 months to obtain). This is important as it enabled Liam and Isabel to make changes to some investments of the SMSF, which were urgent due to a falling stock market.
Authored by Julia Monahan, Estate Planning Lawyer, HLB Mann Judd Sydney