The other day I was at the library with my 10 year old son. I bumped into a bookshelf next to the children’s section and a book fell to the floor. I picked it up and was surprised to note that the book was an introduction to the topic of powers of attorney, written for the general public. As I glanced through it a title caught my eye: “If powers of attorney are important, why do so few people have them?” Why indeed?
Like all people, small business owners and entrepreneurs are often too busy living life to focus on issues that are not immediate. We know we should have a power of attorney in place, and it is on the to do list – but we procrastinate. Perhaps we don’t feel the financial cost is worth the possibility that we will ever need it, or we simply prefer not to think about the fact that ill health or accidents could make us incapable of making our own decisions about how to manage our property. We may even think that we won’t need a power of attorney in place until we are “old”.
But consider this scenario. You are the sole shareholder and director of a business. Your business is in the process of negotiating some very important transactions. The stakes are high. On the way into work, your vehicle spins out of control on some black ice and you are left with serious injuries including a concussion. Because of your injuries and the painkillers, you are disoriented and incoherent. You show little improvement for several days. Pressure mounts at work for decisions to be made about the upcoming transactions. What will happen?
If you have a continuing Power of Attorney (POA) in place the person you have nominated can do everything with your property that you could do, except for a few things, like make a will. This would include voting your shares. This means you have to choose someone completely trustworthy to act for you under a POA.
If you do not have a power of attorney in place, things become more difficult. In Ontario, under the Substitute Decisions Act,1992 the question becomes whether you would be capable of appointing an attorney for property. The standards for assessing this capacity are found in s.8 of the Act. Basically, if you are capable of understanding:
- that you are appointing someone to make for you all the decisions that you could make about your property;
- that you risk losing it all;
- that you can revoke the power; and
- that the attorney is accountable,
you are capable of appointing an attorney for property decisions. This is a lower threshold than the question of whether you are capable of making property decisions. If you are capable of appointing an attorney for property, they can act for you while you are incapable of making a decision about property.
If you are not capable of appointing an attorney for property, you will also not be “able to understand information that is relevant to making a decision about … property, or … able to appreciate the reasonably foreseeable consequences of a decision or lack of decision” under s. 6 of the Act. If your recovery is slow, you could be in the difficult position of being incapable of making a decision about a POA or your property, and your close family members (eg. spouse) cannot act for you to make property decisions without having been appointed under a power of attorney.
An application for formal assessment by a capacity assessor can be made under the Act. If you are found to be incapable of managing property, the Public Guardian and Trustee (PGT) becomes your statutory guardian, and must manage your property, including your (matrimonial) home and business assets.
Guardianship can be transferred to a family member who is approved by the PGT office. If you have no relatives, the PGT will continue to manage your property.
The lack of a continuing power of attorney could cause much hardship to your family and business associates, employees, and the business itself.
But there is even more to consider. Section 118 of the Ontario Business Corporations Act provides that a person who has been found under the Substitute Decisions Act, 1992 to be incapable of managing property is disqualified from being a director of a corporation. Eventually you could be disqualified from being a director. The shareholders (you) must replace the sole director, and the PGT is your statutory guardian. Even if a family member is approved by the PGT office to become your guardian, much time will have elapsed before anyone is in a position to vote your shares to elect a new Board and manage your corporation. This may have serious financial consequences for your business, your family, and you.
Having a well drafted POA in place would have simplified everything for you, your family, and your business.
Planning for the unexpected is a component of every good business plan. This includes careful consideration of a continuing power of attorney, and structuring the management of the corporation to deal with emergencies. (These topics will be considered in more detail in future blogs).
- If you are over 18 and make any property decisions, you should consider having a Power of Attorney.
- Seek legal advice about how to structure a Power of Attorney (POA) that meets your needs and current situation. Review the POA regularly, especially after any significant life event. Beware of off the shelf documents that may not meet your needs, or may not be valid in your province.
- Select your attorney carefully. They must be completely trustworthy, understand how you would manage your property, and be willing and able to accept the responsibility of making property decisions for you.
– – –
This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.