Lasting Power of Attorney – Not Just for the Third Age but also for Young Start-Up Entrepreneurs

Lasting Power of Attorney – Not Just for the Third Age but also for Young Start-Up Entrepreneurs

Yair Aloni, Adv.
January 27, 2020

An entrepreneur of a startup company which was represented by our firm had a serious illness which caused him to be hospitalized in a coma state for a long period of time, unable to manage the company, which came to a standstill because the entrepreneur was the key person in the company. This is a case in which key person insurance (which is a common requirement from the company in merger and acquisition transactions) does not help but a lasting power of attorney may solve the issue and it is recommended to demand it upon investment in a company based on one or two key persons.

It is a common belief that lasting power of attorney should be considered only upon reaching the third age, for the purpose of preparations for the old age. However, more and more young business people are beginning to sign a lasting power of attorney, especially in the startup world, to ensure continuity of the managing of the company or execute of the business vision even if the entrepreneur a or significant shareholder loses, even temporarily, the legal capacity, due to an accident or disease.

A lasting power of attorney is an extremely important tool that enables the management of a person's routine even when he is no longer able to understand a thing, whether due to illness, dementia, accident or any other event, permanently or temporarily, all according to a pre-recorded set of guidelines and allowing the "attorney" to advance the will of the grantor. This legal tool enables the ensuring of continuity in the property and personal matters of a person by appointing a close person with whom much confidence is given. The possibility to leave individual guidelines is relevant and especially helpful when it comes to managing company affairs, especially when it comes to a startup company. For example, in a situation where, due to a sudden event, the entrepreneur enters into a state of mental disability, the company can be saved from a standstill and even a loss of the entire investment. The lasting power of attorney may enable voting on certain issues and action for the furtherance of the business vision as well as approval of business actions required to achieve it, in accordance with the legal limitations.

Other tools (such as the appointment of a substitute director, a voting proxy or even notarized power of attorney) become irrelevant in the event of loss of legal competence and also, such grant full power that which is not limited to the will of grantor. A case decided by the Family Court of Kiryat Gat in December 2020 dealt with a family dispute after a controlling shareholder of a group of companies lost his legal capacity but left an irrevocable notarial power of attorney to some of his children for a period of 20 years. Although in this case the Court approved the use of the power of attorney, it required a complex and time-consuming legal process, as opposed to a lasting power of attorney that could have prevented the dispute in the first place. It should be noted that in that case, the power was granted before legislation allowed execution of a lasting power of attorney.

Preparation of a lasting power of attorney requires the use of a qualified attorney, but this is a very basic qualification and therefore it is advisable not to settle for a qualification alone and only work with a lawyer with many years of experience in contracts, commercial and litigation, who is also skilled in this field, which will make sure the lasting power of attorney and its guidelines are tailor-made to the grantor needs. Where the purpose of the power of attorney is to protect a startup company, it is very important for the lawyer to know this area as well. Regardless, when investing in a startup company based primarily on one key person, it is advisable to ensure that this person signed a well-drafted lasting power of attorney to ensure that the investment will not be lost in the event of loss of competence due to an accident or sudden illness.