POA: Full Form, Purpose, Importance and Types

What is POA?

POA is defined as a formal instrument by which the one individual, who is the donor of power confers the powers to the donee to act on his behalf and represent him in any contract or any performance of act. It is an instrument which empowers another person to act on behalf of the person executing it. Power of Attorney, or POA, is a legal document that gives an attorney-in-charge or legal agent the authority to act on behalf of the principal executing the POA. The attorney in charge shall possess broad or limited authority to act on behalf of the principal. POA gives the right to the agent to make decisions regarding medical care, financial matters, or property on behalf of the principal. A power of attorney document is an extremely important part of planning.

Full Form of POA

POA stands for Power of Attorney. POA is a formal instrument by which the one individual, who is the donor of power confers the powers to the donee to act on his behalf and represent him in any contract or any performance of act. It is an instrument which empowers another person to act on behalf of the person executing it. Power of Attorney, or POA, is a legal document that gives an attorney-in-charge or legal agent the authority to act on behalf of the principal executing the POA.

Features of POA

1. Public Document: A power of attorney is a document that is notarised, which makes it a public document and be accepted widely. This POA, therefore, allows a natural person and the legal entity to designate and authorise a legal agent to represent on his behalf in any legal Acts or any specified performance. This document makes it clear that the agent will act on behalf of the principal.

2. Unilateralism: Power of attorney is a document that has a feature of unilateralism. It means the granting of a POA does not require the authorisation of the person who receives it, i.e., the agent to whom the powers are authorised. Similarly, the person who executes the POA needs to provide his presence at the time of notary while granting the POA.

3. Simple: It is a very simple process to grant or create a POA, as the granter only is required to present himself before the notary. The granter shall be in full possession of their mental facilities and legal age to grant a valid POA.

4. Disclosure: Under POA, the granter of the POA is required to disclose all the details and conditions under which the powers shall be delegated to the agent. A proper description of nature and scope of the agent’s power shall be disclosed. Disclosures are extremely important in cases of limited or special power of attorney.

5. Notarised: The document of the POA should be compulsorily notarised by the advocate, who can declare that the principal is able to make the contract of the POA.

Purpose of POA

1. Representation: A Power of attorney is a legal document in which an individual can specify who has the authority to make decisions on his behalf if a person is unable to make decisions himself or in a situation in which he cannot represent himself as he might not be physically present or he is of the opinion that he is not the suitable person to represent.

2. Appointment of Agent: The authority or agent appointed to decide on the principal’s behalf is responsible and is expected to make and take decisions for the principal’s benefit, under all circumstances his priority is agent’s benefit maximisation. The POA has multiple purposes as there are different types of POAs that serve different specified purposes.

3. Protects Interests: If the person becomes incapacitated and the person has endured a POA in place, in that case, the agent or attorney has the authority to make decisions on his behalf to protect the interest of the person.

4. Avoids Guardianship: In case the person doesn’t have a POA in place, then the court may appoint an administrator or guardian to make decisions for the person. This can be a long and expensive process, and the personal interest of the individual might be sidelined

5. Sense of Relief: When the individual has signed a power of attorney, the person gets liberty and relief that on case of any uncertainty, the matters would be handled with care by the agent appointed by him. POA ensures that the agent would use the required expertise in the decisions to be taken.

Importance of POA

1. Authority to Create a Representative: A legally valid power of attorney gives another person the authority to act on behalf of the principal. The agent to whom the authority has been given has full legal authority and a legal status to act for the principal within the limits of the POA as created by the principal, which makes this is a very powerful document.

2. Provides Assurance: There are many good reasons to make a power of attorney as it ensures that principal is assured that there will be someone to look after his financial affairs in case he becomes incapacitated. However, the principal should choose a trusted family member, a proven friend, or a reputable and honest professional as on signing of power of attorney, grants broad authority to an agent, which is very much like signing a blank check, so due care is to be followed.

3. Provides Asset Protection: POA is also important because in case the person doesn’t appoint someone, the court has the power to appoint someone on his behalf if the person becomes incapacitated and then the actual heir will have no control over the assets.

4. Avoids Appointment of Guardian or Conservator: In an event requiring appointment of guardian or conservator, POA comes as a to play the lender of the last resort. Court has the authority for the appointment regarding guardian or conservator and such appointments might hamper the individual’s personal interests. In such cases when POA already exists protects the interests of the individual.

5. Prevents Abuse from Financial Claims: In any case when the Agent is making decisions in accordance with the POA and his action is only for the benefit and wellbeing of his principal, then the Agent will be insulated from claims of financial abuse by other family members or any other party. POA is helpful in a case when any other party is making a claim over the assets of an individual, such claims may lead to court stay over the assets and this might end up in long court proceedings. POA in such situations serves as s document for protection.

Types of POA

1. General Power of Attorney: The general power of attorney is a broad mandate which gives an agent a lot of power to handle all the affairs of a principal. The agent or the person designated to act on behalf of the principal is charged with handling several tasks as an agent to the principal. The tasks include buying or disposing of real estate or even entering into contractual relationships on the behalf of principal.

2. Limited or Special Power of Attorney: In case an individual wants to limit the power to agent, the individual should choose limited or special power of attorney. Under limited power of attorney, a person needs to be as detailed as possible about how much the agent should handle, and each and every condition and clause should be thoroughly disclosed. Limited power authority are commonly used when for facilitating one time transactions.

3. Durable Power of Attorney: This type of power of attorney is only effective during the period when a person wishes to get someone else to act on his or her behalf. A non-durable POA will end at the moment it is revoked or when the expiration date specified in the POA arrives, but here the power of attorney will not expire upon the principal’s death. It does not have any pre-set period and immediately becomes effective when the principal becomes incapacitated to enter any contract.

4. Medical or Healthcare Power of Attorney: If the principal becomes very ill, he or she will reserve the right to decide the quality of care to be preferred. Medical or health care POA authorises the agent to make decisions on behalf of the principal in case of a life-threatening illness, and these decisions should be made with due care keeping in mind the principal’s preference. Most health POAs fall under the durable kind of POA because they take into consideration the fact that the principal may be too sick to make decisions on his own.

5. Springing Power of Attorney: A springing power of attorney is a POA which only occurs on an event or a predefined condition. The principal creates this document for his agent to act on his behalf if the predefined event occurs. Agent will have to act as per the POA as and when the predefined condition or events occur, without any intimation or direction from the principal.

Advantages of POA

1. Legal Issues: One of the significant benefits of POA is its ability to handle legal issues even without the presence of the main person. The POA holder can act on behalf of the principal and sign documents, and enter into contracts and agreements which are legally binding.

2. Financial Matters: POA is an effective tool to handle financial matters when an individual is unable to do so by himself. The POA holder can access the bank accounts, advance loans, invest in stocks, bonds, and mutual funds, and pay bills on behalf of the principal, and even accept deposits and receive the payments which originally belonged to the executor of the POA.

3. Business Transactions: In India, POA is a common practice followed in the business world. The POA holder can negotiate contracts, sign the agreements, and can even handle business deals on behalf of the principal. It can be observed that in case of acquisition or merger, business houses have given POA to several private equity firms to enter into business on behalf of the business house.

4. Property Management: The leading area where POA is widely popular is Property management, it is the main reason why POAs are popular. Property dealing and management are the common reasons for executing POA. The POA holder can manage the principal’s property, buy or sell, pay utility bills, and collect rent.

5. Healthcare: The POA holder can make healthcare decisions on behalf of the principal when he is unable to do so by himself. In India, POA can also be used for life decisions, the document can specify the principal’s wish regarding life-sustaining treatment, organ donation, and other medical issues.

Disadvantages of POA

1. Misuse of Power: The most significant demerit associated with POA is the possibility of the misuse of power. The POA holder might abuse their authority by making unauthorised transactions on behalf of the principal, using the principal’s assets for their own benefit, or not working primarily for the principal’s best interest.

2. Incompetent POA Holder: According to Indian law, the POA holder should be competent to act and make decisions on behalf of the principal. However, sometimes the POA holder may not be competent leading to problems like a minor or a person of unsound mind.

3. Revocation or Cancellation: POA can be revoked or cancelled by the principal at any time during the POA agreement. The law has provided that in India if the POA has been registered with the registrar, the cancellation process should be routed via registrar, which is time-consuming and complicated.

4. Financial Liability: POA holder is responsible for any liability arising from their actions as POA is also guided by the principal of agency. Therefore, if the POA holder incurs a debt, the principal may be responsible for it, and he can’t get away from paying the debt.