Most of us know the legal concept that the person holding a general power of attorney (the attorney) can do whatever the person who granted the power of attorney (the principal) can do legally on behalf of the principal, except making, revising, or revoking a will. This is a truth. However, it can be misleading. Often people think that if they have given someone a power of attorney, that person can also make decisions on behalf of their operating or holding companies in their place and stead as a director of those companies. This is an incorrect belief and can leave your company without a person to run it when you are incapacitated and unable to run your company.
The person to whom you have granted a power of attorney can manage your personal legal and financial matters, but that person cannot act on behalf of any companies you own. That person also cannot take your place and stead as a director of a company. There are several ways to do incapacity planning involving a company.
The Business Corporation Act of B.C. provides that any company created under the laws of B.C., can in writing designate a person (who could be an individual or a company) as its attorney and empower that attorney either generally or for specific matters, to execute deeds, instruments, or other records on behalf of the corporation. This is usually done by corporate resolution.
The Power of Attorney Act of B.C. provides that a B.C. company may, by instrument in writing under its corporate seal, empower a person (who could be an individual or a company), for a specified matter or purpose, as its attorney, to execute all deeds or documents on its behalf. This is usually done by way of a power of attorney limited to a certain purpose (not general) under the corporate seal.
There are several methods of incapacity planning if you are a director of a company. The method I favoured when I was in private practice was to create companies, the Articles of which allowed the appointment of a substitute director. I would then prepare the necessary corporate resolutions and documents to allow the company to remove the incapacitated director upon the director’s incapacity and install the substitute director. Your client’s lawyer will have his or her own method.
As investment advisors and portfolio managers, you don’t need to spend time on the legal nuances of incapacity planning involving companies. What you need to know is that a power of attorney is not the appropriate tool for incapacity planning for an individual when it comes to the affairs of a company. You need to know that your clients must consult either with me as the NBF estate planner in B.C. or consult a lawyer who understands incapacity planning involving businesses and companies to put in place the proper incapacity plan involving your clients’ companies.