As part of an estate planning process, it is common for the owner of a closely-held business to execute a general durable Power of Attorney appointing an agent, also called an attorney-in-fact, to manage his or her financial affairs and other matters if he or she becomes unavailable or incapacitated. Typically, the powers given an agent under a general Power of Attorney are broad and, unless limited, would include the power to make decisions that the business owner would normally make as the chief executive and owner of the business. These powers include, for example, hiring and firing employees, entering into long-term commitments with customers and suppliers, making financing decisions, and even agreeing to sell the business.
These are critical decisions that, in the business owner’s absence, should be made only by someone who has the requisite knowledge, experience, and time to devote to the business and who the business owner trusts implicitly.
Oftentimes, a family member or close personal friend is appointed as an agent under a general Power of Attorney with authority to pay bills, purchase and sell property, and hire caretakers for example. While these decisions are important and require a level of sophistication, it’s not always the case that this person is also qualified to make business decisions. In that situation, a business owner should consider also appointing a different agent under a separate durable Business Power of Attorney.
Under a Business Power of Attorney, the agent might be a key employee of the business, an accountant or other advisor, or a committee of these individuals and family members who can give appropriate balance to the personal and business interests involved. The decision of who to appoint should be made after careful consideration and meaningful discussion with trusted advisors and the prospective agent(s).
When it comes to drafting a Business Power of Attorney, don’t use a standard document without any real customization. A Business Power of Attorney should never be a fill-in-the-blank or off-the-shelf form. Instead, it should:
- be tailored to meet the business owner’s particular concerns
- take into account any operating requirements specific to the business, such as professional licensing
- be appropriately limited with respect to the powers granted, and provide for when the powers become effective and under what conditions they may be exercised
- consider any provisions in the company’s Bylaws or Operating Agreement that place limitations on succession planning activities
- be drafted to comply with local law
A Business Power of Attorney is one of many options available to help business owners with succession planning during their lifetime. Other important succession planning tools include buy-sell agreements, voting trust agreements, proxies, and delegation of authority policies. The thought of planning for incapacity can be unpleasant. But owners of closely-held businesses should make it a priority to discuss the topic with their advisors and design a suitable plan that will help ensure continuity for their businesses and peace of mind for their families and employees whose futures may depend on it.