Decision making within a company is usually carried out by the company’s board of directors (and sometimes the shareholders, where required). But what would happen if a director or shareholder loses mental capacity and the ability to make decisions? In this situation, how a business is run will typically be documented under the company’s governing documents (or within contracts entered into with the other owners of business e.g. shareholders agreements).
As UK corporate legislation does not provide businesses with a straightforward remedy if this issue arises, it is important ensure that, as a director or shareholder, you have a remedial plan in place so that the business can continue to run smoothly with someone able to make decisions on your behalf. This may include, for example, the ability to manage the banking of the company or enter into key contracts during the day to day running of the business. This could also be crucial where important company decisions need to be made and the necessary director or shareholder required to make the decision finds themself in an unfortunate situation where they are not able to make decisions for themself.
What is a Power of Attorney?
‘Powers of attorney’ refer to documents where one party gives the authority to act on their behalf to another person in a specified set of legal or financial circumstances. Many people are aware of Lasting Powers of Attorney (LPA’s) which are designed to allow close family or friends to act for an individual after they have lost mental capacity in relation to their health and financial affairs. Powers of attorney are in fact wider reaching than that and can serve a variety of corporate purposes.
What are corporate Powers of Attorney?
A corporate power of attorney is normally given by the directors or the shareholders of a company to appoint another person to carry out responsibilities on their behalf. The power of attorney can be specific to certain matters, or general (giving your attorney power to act on your general instructions). Corporate powers of attorney are highly customisable and can allow the appointor to retain control over the term of the appointment and the precise matters for which the attorney is authorised.
A director or shareholder could give their attorney authority to carry out a specific role for them such as to attend a meeting of the company’s board and vote on their behalf. Alternatively, a director might, for example, take a leave of absence from work for a medical procedure and hand their full day to day responsibilities to their attorney.
Why are powers of attorney important for corporate arrangements?
Powers of attorney can be prepared in advance for unexpected developments, for the purposes of convenience, or where required to give effect to a transaction. You may also find it useful to appoint an advisor or lawyer as your attorney to give effect to transactions where you are unable to attend meetings or sign documents yourself.
One of the most fundamental issues that can arise within a company is where directors or shareholders lose capacity and are not able to make key decisions to carry out the day to day running of the business. If this situation did arise, the company may find it difficult to continue its operations.
Are there any requirements for granting a corporate power of attorney?
In order to grant a corporate power of attorney and as a starting point, the company’s articles of association (and any shareholders agreement if applicable will need to be reviewed to ensure that there is authority to do so and that no restrictions will prevent them being granted.
The authority to grant a corporate power of attorney may be contained in the company’s articles of association. If the articles do not allow for this, a company may be able to rely on a statutory right. However, the statutory right is only available in limited circumstances and does not extend to granting a power of attorney on behalf of an individual director. It is therefore important to ensure that your company’s governing documents are up to date and provide you with an appropriate remedial plan to deal with such a scenario.
Consideration should also be given to any shareholder agreement in place to ensure that the granting of a power of attorney will not breach any agreed terms.
If a director or shareholder grants a power of attorney without the proper authorisation in breach of the company’s governing documents then there is a risk that any actions taken by the attorney could be challenged.
How can we help with Corporate LPAs?
Our corporate team can advise any company documents that would need to be updated to allow for a valid corporate power of attorney and our private wealth team can draft the necessary wording to give effect to your intentions. Our private wealth team can also advise you on the different types of powers of attorney and assist with the drafting of these.
If you would like to know more about whether putting in place a power of attorney for your business would be appropriate, please contact our team.
