For business owners, the stakes of becoming incapacitated without a power of attorney are especially high. While anyone can suffer consequences from a lack of planning, business owners risk not only their personal finances but also the livelihoods of their employees, the interests of their partners, and the survival of the business they have built. A properly drafted power of attorney is a critical component of any business continuity plan.
Why Business Owners Face Unique Risks
When a business owner becomes incapacitated, the impact ripples far beyond their personal affairs. Contracts cannot be signed, payroll may not be processed, vendor payments may be missed, banking transactions may stall, important business decisions go unmade, and the business can quickly lose momentum, customers, and revenue.
For sole proprietors, the situation is even more dire. Without any other authorized decision-makers, the entire operation can come to a standstill. Even for businesses with partners or key employees, the incapacitated owner's authority cannot simply be transferred without proper legal documentation.
Unlike personal financial matters, where delays are inconvenient but manageable, business operations often require immediate action. A single missed payroll, a failed supply chain payment, or an unsigned contract can have cascading consequences that threaten the entire enterprise.
What a Business-Focused POA Should Cover
A power of attorney for a business owner needs to go beyond standard financial powers. It should address the specific needs of the business and the owner's role within it.
Business Operations
Your agent should be authorized to manage day-to-day business operations, including signing contracts and agreements on behalf of the business, making purchasing decisions and authorizing expenditures, managing vendor and supplier relationships, overseeing employees and making employment decisions, filing required reports and regulatory documents, and maintaining business licenses and permits.
Financial Management
Business-specific financial powers should include accessing and managing business bank accounts, processing payroll and paying employee benefits, paying business taxes and filing returns, managing business loans and lines of credit, invoicing customers and collecting receivables, and managing business insurance policies.
Legal and Compliance
Your agent may need to handle legal matters related to the business, such as responding to lawsuits or legal demands, maintaining compliance with industry regulations, managing intellectual property, handling lease agreements, and communicating with regulatory agencies.
Business Transactions
Depending on your business structure and the level of authority you want to grant, you may also authorize your agent to negotiate and close major deals, sell business assets, bring in additional investors or partners, restructure the business, or in some cases, sell the business itself.
Choosing the Right Agent for Your Business
Selecting an agent for a business-focused POA requires careful consideration of factors that go beyond personal trust and reliability.
Business acumen. Your agent should have a solid understanding of how businesses operate, including financial management, employee relations, and operational logistics. They do not need to be an expert in your industry, but they should be comfortable making business decisions.
Industry knowledge. If your business operates in a specialized field, having an agent who understands the industry can be extremely valuable. They will be better equipped to make informed decisions about operations, clients, and strategy.
Relationship with key stakeholders. An agent who is known to your employees, partners, clients, and vendors will have an easier time stepping in. Consider introducing your chosen agent to key stakeholders in advance.
Availability. Running a business is time-consuming. Your agent must be able to devote significant time and attention to the role if needed, especially during the initial transition period.
Potential conflicts of interest. Be cautious about naming a business competitor, a disgruntled partner, or someone with a financial interest that conflicts with yours. Their personal interests could cloud their business judgment.
In many cases, the best agent for a business owner's POA is a trusted business partner, a key employee with management experience, or a professional advisor (such as an accountant or financial advisor) who is already familiar with the company's operations.
Business Structure Considerations
The type of business entity you operate affects how a power of attorney interacts with your business.
Sole proprietorship. If you are a sole proprietor, your business is legally an extension of you. Your personal POA covers your business affairs directly. Your agent can step in and manage all aspects of the business under the POA.
Partnership. Partnership agreements typically address what happens when a partner becomes incapacitated. Your POA works alongside your partnership agreement. It is important that the two documents are consistent and do not conflict. Review your partnership agreement to understand any restrictions on your agent's authority.
Limited liability company (LLC). LLC operating agreements often include provisions about member incapacity. Your agent under a POA may be able to exercise your rights as a member, including voting on company decisions and receiving distributions. However, the operating agreement may impose restrictions or require approval from other members. Make sure your POA and operating agreement work together.
Corporation. If you serve as an officer or director of a corporation, your POA generally allows your agent to manage your shares and receive dividends. However, corporate governance rules may limit an agent's ability to serve in your place as an officer or director. Board bylaws and shareholder agreements should be reviewed.
In every case, your POA should be coordinated with your business's governing documents to avoid conflicts and ensure a smooth transition of authority.
Complementary Business Planning Documents
A power of attorney is one piece of a comprehensive business continuity plan. Other documents to consider include a buy-sell agreement, which establishes what happens to your ownership interest if you become incapacitated (or die), a business succession plan that outlines the long-term transition of leadership and ownership, key person insurance that provides financial resources if you are unable to work for an extended period, an operating agreement or partnership agreement with incapacity provisions, and cross-training documentation so that key employees can take on critical functions.
Together, these documents create a safety net that protects your business from multiple angles.
Practical Steps for Business Owners
To ensure your business is protected, take these steps.
Create a durable financial POA with specific business powers. Make sure the document explicitly addresses your business operations, not just your personal finances. Use clear, detailed language about the business-related powers you are granting.
Coordinate with your business documents. Review your partnership agreement, operating agreement, bylaws, or other governing documents to ensure consistency with your POA.
Choose an agent with business skills. Select someone who can realistically manage your business affairs, not just your personal finances.
Introduce your agent to key stakeholders. Make sure your employees, partners, banker, and accountant know who your agent is and what authority they will have.
Document critical business processes. Create written procedures for key operations so your agent can quickly get up to speed if they need to step in.
Review and update regularly. Business circumstances change frequently. Review your POA and business continuity documents at least annually.
Do Not Leave Your Business Unprotected
Your business is likely one of your most valuable assets, and it depends on your active involvement to thrive. A power of attorney ensures that if you are temporarily or permanently unable to manage the business yourself, someone you trust can keep it running, protect its value, and serve the interests of everyone who depends on it.
mypoa.ai can help you create a power of attorney that includes the business-specific powers you need. Your download includes detailed execution instructions for proper signing, witnessing, and notarization to ensure your document is legally valid and ready to use.