A power of attorney is a legal document that gives someone authorisation to act on behalf of the business. Typically, the authorisation document carefully details the transactions and processes for which the person is being granted power of attorney, rather than giving a general mandate that would allow the agent to act completely freely.
A power of attorney provides legal authority for a person acting as an agent. For a business, this authority can encompass the ability to access financial accounts, sell securities or place new orders and write cheques, although the agent may also perform a range of other activities to keep the business running. For security reasons, a POA document should strictly limit the agent's activities or access to specific accounts.
Powers of attorney can be used effectively in the normal course of business, or only under certain circumstances - for example, when the owner of the business is incapable of making decisions or unable to access the business accounts.
Advantages & disadvantages of POA authorisation
The main advantage of a power of attorney for a business bank account is that it gives you the security of a back-up plan in case the owner of the business or other authorised persons are unable to fulfil their tasks. Authorising an agent to act on its behalf prepares the business for any unexpected situation and enables essential business decisions to be made in a timely manner. If the owner of the business has not granted legal authorisation to anyone, there is always a risk that at some point he or she will not be able to make important business decisions or carry out essential transactions, which can lead to huge damage to the business and its reputation. Not having an appointed authorised agent can result in salaries not being paid on time, business loans or mortgages not being serviced, third-party suppliers not being paid and potential contracts being lost.
The advantage of being able to authorise someone to act on behalf of the account holder goes hand in hand with the need to be certain you can trust the appointed agent with access to your business account. Therefore, you would be firmly advised to think carefully before granting someone a POA and providing him or her with bank account access and the ability to make important business decisions. The person you designate as the agent will have unmonitored access to the company's funds, which could potentially increase security risks if the appointed person acts in any interests other than those of the business.
Security risks & liability
Generally, someone who is granted power of attorney is expected to make decisions according to the best interests of account holder, even if those decisions are not those that the agent would make personally. Therefore, it is important to discuss all aspects and liabilities of the POA with that individual.
In order to diminish the possible security risks, you need to understand who you can trust with access to the business account and, ultimately, the business itself. The agent will most likely be managing your business at a time when you are not able to pay close attention to his or her decisions. Eventually, a power of attorney given to the wrong person can result in misuse of the company's money or its access to credit, if, for example, that person makes poor investments, incurs debts in your name or fails to pay invoices in a timely manner.
