Businesses can be complex. There can be a multitude of cultural, social, financial, and legal aspects associated with them; things that are so impactful, they can dictate how the business operates.
Entrepreneurs and business owners, being human beings, might not always be able to personally handle every aspect of their businesses. Under such circumstances, they often decide to hire a “helping hand.”
This is where power of attorney comes into play. Although the term sounds like it belongs in the legal sector, the real meaning is quite different. Different businesses have other jobs for their appointed agents, while many do not even implement them in the first place.
This article focuses on the various types of power of attorney available for business owners to avail. You will also be able to decide which one is best suited for your business by the end of this article.
What Is a Power of Attorney for a Business?
As per the Consumer Financial Protection Bureau (or CFPB), a power of attorney is a legal document that allows you to hand over certain authorities (business authorities in this case) to someone else on your behalf. If you sign a power of attorney, it would mean that the person mentioned in the document will have the ability to make business decisions with or without your absence, based on the terms agreed upon by both entities. Your existing clients would deem the person as the owner and act accordingly.
The person having a power of attorney is generally known as an attorney-in-fact or simply an agent. Many people make the mistake of thinking the attorney-in-fact is an honest attorney of law, which in reality, might not be the case.
A power of attorney tends to be highly flexible as the original owner can limit the authority of the agent as they feel the need to. A power of attorney does not necessarily have to be solely dedicated to a single person. You may decide to divide it among multiple agents to have different individuals taking care of specific aspects of the business. All the power of attorneys can be active simultaneously.
Types of Power of Attorney for Businesses
Now that you know what a power of attorney is let us look at the three types of power of attorney in the sections below.
Financial Power of Attorney
Businesses benefit the most from a Financial or General Power of Attorney. An individual with this power will be able to take care of all the financial responsibilities and functionalities of the principal (the person who is transferring the duties over). The responsibilities of such an agent may include operating the business, buying and selling commercial real estate, utilizing the existing assets, striking business deals, handling the finances, auditing the transactions, keeping in touch with the banks, filing tax paperwork, dealing with potential or recurring lawsuits, and so much more.
The duration of a power of attorney can be highly volatile. The principal holds the power to negate a power of attorney and take back control of the organization whenever necessary. Specific initiating and ending dates can be set before both entities sign the contract.
A common example of drafting a financial power of attorney is when business owners hand over the reins of their companies to their spouses or children. This is a good practice as the primary control of the organization remains within the family.
Certain countries and states allow a power of attorney to be established that is unique in a way that it automatically kicks in whenever the principal is incapacitated. These are great for emergencies as the owner does not have to worry about the company despite falling into accidents or other tragedies.
Special Power of Attorney
Think of extraordinary power of attorney as a temporary means of avoiding business setbacks. This is highly flexible and is generally quick. Principals tend to invoke the power of attorney (or limited power of attorney) during crunch times when they are needed in different business aspects simultaneously. Under such circumstances, the owner allocates an agent that takes care of one aspect that he or she would not be able to deal with. Example scenarios may include paying a visit to the bank, cracking a particular business deal, taking care of a lawsuit, and more.
Healthcare Power of Attorney
Although not directly related to businesses, a healthcare power of attorney deals with the owners of said businesses. Imagine yourself completely incapacitated, lying in the hospital, unable to go to the company you own. The business would be massively affected due to your absence.
This is where a healthcare power of attorney comes into play. The appointed agent would be able to take all the decisions related to your medical procedures and leave no stone unturned to bring you back to full fitness. Allocating this power to a sibling or a relative is the ideal option to take.
There is a key difference between a healthcare power of attorney and a living will. The latter deals with end-of-life decisions, while the former tends to take the wheels from the moment you become incapable of making your own decisions.
Trading third-party funds, taking loans, establishing deals, you name it - an agent with a power of attorney can handle them all. Businesses are greatly benefited ever since the power of attorney became a thing. Make sure you have a firm idea of all the intricacies involving a power of attorney before opting to go ahead with it.