A business can be one of the most important and valuable assets within an estate, so it’s important for business-owners to consider what would happen to that asset if they became unwell, lost capacity or passed away. Where a business owner is also a sole director, it can result in the decision making and day-to-day operations of that company coming to a grinding halt – potentially destroying value and exposing the company to liability. However, an appropriately drafted Corporate Power of Attorney (CPOA) can allow a company to remain fully functional, even where the sole director becomes incapacitated or dies.
A CPOA is similar to an individual power of attorney, in that it nominates a person or persons to act on behalf of the company for any period where a sole director is unable to act. By contrast, an individual power of attorney may not provide the attorney with sufficient authority to operate the business, and won’t necessarily allow the attorney to execute documents on the company’s behalf. A CPOA provides the recipient with a broad range of powers in order to continue to transact the company’s business, including powers to purchase, sell and lease property, and to settle accounts with suppliers and manage payroll for employees. These powers can be tailored to be as broad or as narrow as required and can come to an end once the director regains capacity.
Whilst a new director of the company can be appointed by its shareholders, this will not be possible where the sole shareholder is also the sole director and has either lost capacity to act or has passed away, significantly hindering the process of appointing a new director. Section 201F(2) of the Corporations Act allows the legal personal representative (often the executor of an estate) to be appointed as an interim director but, as the probate process can take months, this will also create a vacuum in the company’s management. As such, the company might effectively be in stasis until the shares pass to the beneficiaries under a Will, which can take even longer. Worse still, the shares might be worthless by the time they pass due to the damage caused by the inability to operate.
A CPOA allows you to bridge this gap in time by nominating a person to act on behalf of the company until a new, permanent director can be appointed. This means that a business can continue to operate, meet obligations and generate income until it is passed to the beneficiaries of your will or prepared for sale.
Partners Legal can work with you to identify how a Corporate Power of Attorney can be a beneficial part of your clients' estate planning strategy.