Power of attorney for entrepreneurs

Why is the establishment of an entrepreneurial power of attorney important?

The establishment of an entrepreneurial power of attorney is important in order to ensure the company’s ability to act in the event that the managing director(s) / shareholder(s) are prevented from doing so.

The absence of the managing director can lead to the fact that on an operational level, for example, no more contracts can be concluded and no more payments (e.g. rent, salaries etc.) can be made. There is a risk of insolvency and loss of employees.

At the corporate level, the loss of a shareholder can lead to the situation that no more shareholder resolutions can be passed (for example, the appointment of a new managing director).

The establishment of an entrepreneurial power of attorney is of elementary importance, especially in the case of sole proprietorships, one-man GmbHs and one-man GmbH & Co. KGs, as the loss of the entrepreneur in the absence of precautionary regulations is accompanied by the complete inability to act.

What happens if no provision has been made?

If no provision has been made, the Betreuungsgericht (guardianship court) will appoint a guardian for the necessary areas of responsibility. The Betreuungsgericht will decide who will be the guardian at its own discretion. The person of the guardian is a person from the family environment or a professional guardian.

What disadvantages does the appointment of a guardian by the guardianship court have?

A serious disadvantage of the appointment of a guardian or trustee is that the appointment of the guardian takes up valuable time, time which a company – especially in times of crisis – usually does not have. Any disputes between the parties involved can lead to an additional delay in the care procedure.

The question then arises as to what extent the court-appointed guardian is even capable of making (short-term) decisions. It must be taken into account here that the guardian must first familiarise himself with the operational issues. Unfortunately, the guardian often does not have the necessary skills (e.g. craftsmanship) or technical/industrial knowledge. In the case of family related persons, this can be aggravated by the fact that they might not only lack knowledge of business administration, but that they are also personally burdened by the absence of a relative.

Furthermore, a court-appointed guardian cannot act freely, but in many cases is dependent on the approval of the guardianship court. He is also accountable to the court.

Why is a private power of attorney for pension provision usually not sufficient?

In principle, a fully comprehensive private power of attorney may be sufficient to ensure the maintenance of the business. However, here too, the lack of specialist knowledge and expertise of the authorised representative as well as the particular burden situation, especially if, for example, the spouse was not previously involved in the business, must be taken into account. Against this background, it is often unintentional to burden the private pension fund officer with the operational issues.

What must be done to maintain business operations?

In order to uncover any gaps, it is advisable to go through the normal course of business, taking into account the loss of individual participants, and to take the appropriate precautionary measures. Here, for example, it is important to check whether several people are authorised to sign and have access to accounts (at least at short notice). In particular, companies should review the provisions in the articles of association concerning management, representation of the company and the adoption of resolutions to ensure that the ability to act is maintained even in the event of the loss of individual (co-)partners.

What precautionary measures should be taken?

Depending on the form of organisation and objectives, for example

• comprehensive shareholder powers of attorney are granted (including the possibility for the authorised representative to appoint himself or others as managing director),
• procuration or commercial powers of attorney (in accordance with §§ 48 ff. HGB),
• proxies may be issued,
• bank powers of attorney are granted (non-house powers of attorney are often not recognized by banks!) and / or
• further managing directors are appointed.

What should be considered with regard to the structure of an entrepreneurial power of attorney?

With regard to the practicability of powers of attorney, it is important that in the “external relationship” (i.e. towards third parties) they are not made dependent on a condition – such as, for example, the occurrence of the incapacity of the party granting the power of attorney. This can lead to disputes (e.g. with the bank) about the occurrence of the condition and subsequently to considerable delays or even to the uselessness of the power of attorney.

However, a power of attorney granted without a condition bears an increased risk of abuse. Against this background, it is important to make provisions for the so-called “internal relationship” between the principal and the authorised representative, especially in which cases the authorised representative may make use of the power of attorney. It should be noted that the regulations in the “internal relationship” do not restrict the powers of the authorised representative vis-à-vis third parties. If, however, the authorised representative makes use of the power of attorney although he is not permitted to do so in the “internal relationship”, he may be liable to pay damages to the principal.

The risk of misuse of the power of attorney can also be reduced by only handing over the power of attorney to the authorised representative (by a trusted person) when the principal can no longer act on his own.

In addition, it is recommended to provide the authorised representative with guidelines or concrete guidelines for the management of the company (e.g. continuation of the company or liquidation) and to ensure that the authorised representative has factual access to necessary information (e.g. passwords, data carriers) and documents (e.g. important contracts) if necessary.