Imagine for a moment what would happen to your business if you were seriously injured or became extremely ill. If you weren’t there to run the day-to-day operations, would it survive? A durable power of attorney document can help ensure that it does. This document allows the right person to step in and keep your business afloat when you can’t.
Want to know about how a durable power of attorney works and why you need one for your business? Keep reading. We’ll review and provide the answers to these questions and more.
What Is a Durable Power of Attorney?
A power of attorney (POA) is a legal document that allows you to appoint an “agent” who can carry out certain acts on your behalf. Some states refer to the “agent” as an “attorney-in-fact.”
This document offers you quite a bit of flexibility. You can choose exactly which powers you’re granting to your agent and which ones to exclude. You may also indicate that the document is only valid under certain circumstances. For example, many durable POA documents are only valid if you’re incapacitated.
Durable Power of Attorney vs. Power of Attorney: What’s the Difference?
When it comes to durable vs. general power of attorney, there’s one major difference. A general POA is automatically revoked when you die or become mentally incapacitated. A durable POA, however, continues on after you’re incapacitated. Since this is one of the primary threats to your business, you’ll want to make sure you have the right type of document in place.
It’s also important to understand the difference between a durable power of attorney vs. living will. Both allow you to designate a trusted person to make medical decisions for you. However, a living will only covers end-of-life medical decisions. While this is an important document, it won’t do anything to help your business.
Why Do You Need a Business Power of Attorney?
If you’re incapacitated and can’t run your business, things can start to go wrong very quickly. There will be no one to authorize the payroll for your employees or pay your vendors and creditors. In the worst case, your business may grind to a halt.
A durable power of attorney allows someone to step in right away and keep things running smoothly.
Without a durable power of attorney document in place, your family members will have to file for guardianship. This is a legal process in which the courts will appoint someone to act on your behalf. Not only is this often emotionally draining, but it’s also expensive and time-consuming. While the case goes through the courts, your business could suffer crippling losses.
Types of POA Documents
There are 3 primary types of POA documents: financial, healthcare and special.
Financial Power of Attorney
A Financial POA can cover either business or personal finances. It may include authority to perform acts like:
- Running your business operations
- Entering into contracts
- Buying or selling property
- Using your assets to pay for your living expenses
- Making investment decisions
- Conducting bank and financial institution transactions
- Filing and paying your taxes
- Hiring attorneys and making legal decisions
Medical Power of Attorney
Medical POAs give the named party the ability to make medical decisions for you if you’re not able to make them on your own. This is not only for end-of-life but also for any time you’re unconscious or incapacitated.
Special Power of Attorney
A special power of attorney only gives very specific permissions. For example, you may give your sister the authority to sign a contract for you while you’re out of the country. Once that act is done, it will expire.
Creating Separate POA Documents
You can create multiple power of attorney documents as long as they don’t overlap. For example, it’s often a good idea to have a durable power of attorney for finances, health decisions and other personal issues. Then, you would also want to complete a second durable power of attorney form for your business affairs.
In this case, it would be common to name your spouse or close personal friend to handle your personal affairs. Then, choose a business partner or key employee to manage your business affairs.
Alternatively, you may prefer to have your spouse make certain financial decisions related to your business and give your business partner authority to run the daily operations.
Whatever you decide, you’ll want to make sure each document specifically excludes the powers that are granted to other parties.
How to Get a Durable Power of Attorney for Your Business
Now that you understand the importance of a durable POA for business, you’re probably wondering how to get one. You may have even searched online and found a “free” online form. Resist the urge to use this.
A power of attorney document is a very specific legal document that requires the expertise of a lawyer. State laws also govern it, so the rules vary depending on where you live. A document that is created incorrectly won’t work when the time comes, and by then it will be too late.
Understanding the basic elements of a POA document will help you communicate clearly with your attorney. Every POA document should include the following.
1. Identification of Each Party
The document should identify the principal (you) and the attorney-in-fact (the person you’re granting powers to). It should also describe the relationship between the two parties. This is important to ensure there’s no confusion about exactly who the document is referring to.
2. The Limits of the Document
Your document will also clearly explain the limitations of the authority. This includes:
- When the document expires (if it does)
- The type of POA you’re executing (general or durable)
- The rights you’re granting (ex. all matters, medical matters only, business matters only, etc.)
- Any specific rights you’re excluding
Your attorney-in-fact won’t be able to perform any actions that aren’t specifically listed in the document. This is another reason why it’s critical to have a professional prepare your POA. A second set of eyes will ensure the document covers all necessary actions.
3. Change of Capacity Statement
In many cases, you’ll want to include a clause that states that if your mental capacity returns, the POA will expire.
4. Detailed Instructions
You may also choose to include detailed instructions for your attorney-in-fact. One example is providing specific information regarding who to consult for specific medical or business matters. When providing these instructions, be careful that none of your legal documents conflict with each other.
5. Signature and Witnesses
A valid POA document usually requires that you sign it in front of two witnesses who are over the age of 18. The witnesses should also not be relatives or any of the individuals named in the document.
Depending on the state, the document may also need to be notarized.
A Durable POA Protects Your Business
Creating a durable power of attorney document is easy, inexpensive and will go a long way towards protecting your business. Best of all, you can draw it up now and put it away until you need it.
If you don’t have the proper documents in place, do the right thing for your business and your family and contact an attorney to draw them up for your today. Once you have your documents, make sure that at least one or two people know where to find them. If they’re not discovered until months after you’re incapacitated, this will defeat the whole purpose.