As we all find ourselves traversing uncharted waters due to the COVID-19 crisis, many small business owners similarly have questions about what will happen to their business should they become sick and unable to operate their company for days, weeks, or even months. One tool that can be of help during this time is the power of attorney.
You may have previously heard your attorney or even a friend refer to a “Statutory Durable Power of Attorney” (“SDPOA”). In a nutshell, an SDPOA, is a form in which one person, the principal, appoints another to serve as their “agent” for purposes of managing that persons property (e.g. bank accounts, real property, etc.). The agent’s powers can be made to become effective immediately upon execution of the document or upon a determination that the principal is incapacitated and unable to deal with their affairs.
Without a proper SDPOA in place, a person who finds themselves disabled or incapacitated and unable to handle their own finances, may have no way of granting their agents access or use of their accounts or other assets. This potentially leaves bills, expenses and other liabilities unpaid and the incapacitated individual and their families possibly in quite a bind.
However, a standard SDPOA may not be the best fit for purposes of keeping the small business owner’s operations going and the money flowing in the event of the business owner’s incapacity. Instead, a small business owner may need to have a separate, limited power of attorney naming another person—an individual who is familiar with the operations of the business and who can be trusted to make decisions if the business owner is unable to.
With that in mind, below are just a few of the questions that the small business owner should be asking themselves:
- What happens if I own a small business and I get sick? Or, what if I get quarantined in place and it becomes impossible for me to sign payroll checks
- Each small business owner should be sure to have, at a minimum, a power of attorney in place naming a trusted person who is familiar with the operations of the company to act on behalf of the business owner in the event the business owner is unable to.
- Management succession should also be kept up to date in the company’s operating agreements to ensure a smooth transition of power.
- All contractors should be made aware of any powers of attorney to limit delays.
- What if I have a SDPOA but it designates my spouse who doesn’t know anything about my business? What if my spouse and business partners do not get along or don’t agree on things? Do I need a separate power of attorney document for my business?
- If a business owner’s spouse is not involved in the business, then the owner should consider executing a separate, limited power of attorney appointing an individual familiar with the company to make necessary business decisions.
- The business owner should be sure that this is a highly trustworthy person who is capable of running the business, and the business owner should discuss this appointment with that individual ahead of time.
- When can my power of attorney be used?
- A power of attorney can be set up to be effective immediately or only upon actual incapacity.
- Making a power of attorney effective immediately will help to smooth the transition from one decision maker to another, but the business owner should be sure that they have complete trust in the individual they are naming if they do make the power of attorney effective immediately.
- If I have a power of attorney that can be used in connection with my business, does it make any difference if my business is a sole proprietorship vs. an LLC vs. a corporation?
- Perhaps, and the business owner should be sure to review the current operating agreement for the entity to determine what actions the business owner is able to take unilaterally (this will be more prevalent in a sole proprietorship) and those which require the votes or consents of members, partners, etc.