When you create a power of attorney, it allows you or your company to choose a person to act on your behalf. In Australia, there are several types of powers of attorney, the two most common being a:
- General Power of Attorney; or
- Enduring Power of Attorney.
This article will explore the differences between these two types of powers of attorney and how you can create them.
What is a Power of Attorney?
A power of attorney involves you, the principal, appointing someone to act on your behalf. The person acting for you is called the attorney. You can use a power of attorney to manage your assets and financial affairs. However, it does not give someone the right to make decisions about your lifestyle, medical treatment or welfare. These decisions are covered by an enduring guardianship.
General Power of Attorney
A General Power of Attorney (otherwise known as an ordinary power of attorney), is only valid when you are still able to act for yourself. If you become incapable of managing your own affairs or become mentally incompetent, the power of attorney automatically ends.
Enduring Power of Attorney
On the other hand, an Enduring Power of Attorney remains valid even when you lose mental capacity or you are unable to act for yourself. However, in both cases, whether a power of attorney is general or enduring, it will no longer be valid if you die. In this case, your will (if you have one) is referred to and the executor of the will takes controls of your estate.
When Do You Use a Power of Attorney?
A power of attorney can be used in most situations where you want to give (full or partial) control to another person. Common reasons for executing a power of attorney include where:
- you are travelling overseas (and do not want to manage your financial affairs while on holidays);
- you are sick; or
- a company has a sole director and would like to allow another person to execute documents or make decisions (often when the sole director is going overseas).
How Do You Create a Power of Attorney?
To give a power of attorney, you will need to prepare a legal document that sets out the terms of the power. It will state:
- your name (as the principal);
- the name of the attorney;
- the purpose; and
- the period for which the power is valid (if relevant).
As the principal, you will need to decide:
- what powers you wish to give to the attorney;
- when the power starts and ends; and
- who you are appointing as your attorney.
For obvious reasons, you should appoint an attorney that you trust. The power can be broad, or limited. You may wish to specify certain matters that the attorney has the power to act for you. However, if you do not restrict the powers that the attorney has, they have the power to make any financial decisions they choose. You should clearly state any conditions that you wish to impose in the power of attorney document.
Importantly, certain states will only recognise a power of attorney where the document that provides the power of attorney is a deed. Therefore, before signing an agreement that claims to give a power of attorney, you should confirm whether the agreement should be a deed instead.
Do I Need to Register the Power of Attorney?
Depending on the nature of the power of attorney and what it will be used for, you may need to register it. If your attorney can manage land and real estate (including registering transfers involving land and real property), then you may need to register your power of attorney in certain states. For example, in New South Wales, if your attorney will be dealing with real estate that you own, the power of attorney document will need to be registered with the NSW Land Registry Services.
Corporate Power of Attorney
Practically, a power of attorney can be used in many contexts and are popular in corporate matters. According to the law, a company is a legal person in its own right and acts through its directors. Directors sign documents and make decisions on behalf of the company. However, if the directors cannot act on behalf of the company, the company cannot operate effectively. A corporate power of attorney involves the company’s directors appointing a person to act as its attorney. That attorney will then have the power to:
- execute documents;
- make decisions; or
- do anything that the directors state in the power of attorney.
You can also insert power of attorney provisions into legal documents relating to provisions that require action. The power of attorney provision ensures that someone will take this action. For instance, often a Shareholders Agreement (or a Shareholders Deed, depending on the circumstances) will contain a power of attorney clause. This clause generally sets out that each shareholder who is a party to the agreement or deed appoints each company director as its attorney. In doing so, the shareholders give the directors the power to do anything that the shareholder is required to do but is either not doing or not able to do. Therefore, this means that if a shareholder is not complying with certain requirements that they have agreed to or must do, a director may be able to step in to carry out the requirements.
How Does an Attorney Execute Documents?
If an attorney needs to sign documents for you, they need to show that they are signing it in their capacity as an attorney. They should specify:
- that they are signing as an attorney;
- that they were appointed by you;
- the type of power you have given them; and
- the date you gave them this power.
A power of attorney is a legal document where you appoint another person (the attorney) to act on your behalf and manage your financial affairs. It is important because it gives another person power to carry out tasks that you may be unable to do. To make a power of attorney, you will need to have a legal document that sets out the parties and the terms of the power. However, before giving a power of attorney, it is wise to get legal advice to ensure that you are protected and understand the consequences of giving a power of attorney.
If you have any questions or need a lawyer to help draft a power of attorney, you can contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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