Consider a scenario where you reside in a foreign country and are interested in launching a Hong Kong business, but encounter the distance challenge. Fortunately, the Power of Attorney emerges as a practical solution to delegate important tasks to a trusted party in Hong Kong.
In today’s article, let’s take a closer look at how this essential tool can help you efficiently distribute your authority and streamline your Hong Kong company operations.
What is the power of attorney?
In Hong Kong, a power of attorney (POA) is a legal document that grants someone the right to act on behalf of another person, in which:
- The person providing the authorization is called the principal, grantor, or donor
- The person receiving this authority is called an attorney or an agent.
A power of attorney serves a wide range of purposes. Among these, the document is typically used when an individual or a business owner is unable to personally handle important matters or be physically present for specific tasks.
Simply put, the POA allows the agent to make decisions and take actions on behalf of the principal in various legal, financial, or personal matters. The extent of these powers can vary, depending on the principal’s intentions. For example, the agent cannot modify a will or act against the principal’s best interests.
Moreover, several attorneys can be appointed, but the principal must specify if they are to act jointly or individually in such cases.
Which legal documents govern Hong Kong's Power of Attorney?
The regulation of powers of attorney is primarily governed by the Hong Kong Powers of Attorney Ordinance (Cap. 31). This document specifies the framework regarding the creation, execution, and revocation of powers of attorney.
Types of power of attorney in Hong Kong
There are several types of powers of attorney for addressing legal, financial, and personal matters. In Hong Kong, the key categories encompass:
General POA
Definition
A general POA allows the agent to engage in any type of activity. It grants authority for a stated period and becomes invalid upon the expiry, principal’s revocation, death, or if the principal loses mental capacity. Due to its unrestricted nature, appointing a trusted agent is crucial for the company’s well-being.
Common uses
A general POA is used when a business wishes to give temporary management authority to another party to perform tasks that require their expertise and efficiency.
The authorized party can then lawfully represent the business when:
- Opening a bank account in Hong Kong;
- Negotiating and entering into contracts;
- Managing financial matters;
- Buying or disposing of real estate;
- Opening a branch or representative office; and
- Other general decisions.
Special or limited POA
Definition
An agent with a limited or special POA can only perform a pre-determined limited set of actions, typically for a single purpose, within a specified period. Thus, the powers can be unilaterally revoked by the principal.
Similar to general ones, the authority automatically terminates upon expiration, death, or the loss of mental capacity.
Common uses
Limited POAs are used when a principal cannot be physically present in the jurisdiction to set up a Hong Kong company. With this document, the appointed agent shall apply for registration with the Companies Registry and secure any business permits or licenses in place of the grantor.
Furthermore, the agent is empowered to handle financial matters, pursue legal claims, and engage in litigation while the grantor is not available.
Enduring POA
Definition
The enduring power of attorney is commonly employed when a mentally stable donor wishes to appoint someone or a trust corporation to manage their financial and business affairs in the event of becoming incapable later on.
What sets the enduring POA apart is that it remains valid even after the donor has lost mental capacity. However, the instrument must be registered with the High Court in Hong Kong following the Enduring Powers of Attorney Ordinance (Cap. 501).
This document takes effect right after the signing process is completed.
Common uses
As previously mentioned, an aging or seriously ill business owner should proactively prepare this document while still considered mentally competent.
This measure can prevent the need for costly court proceedings to determine who should manage the relevant affairs in the aftermath of an unfortunate incident. The involved parties only need to adhere to the drafted POA.
Springing POA
Definition
Springing POA is designed to become effective under the right conditions or events, typically scheduled in the future. Unlike the above POA types which become effective immediately upon signing, a springing POA remains inactive until the triggering conditions are met.
Common uses
The springing POA is often used as a safeguard to ensure that the principal’s affairs are managed appropriately when they are no longer able to do so themselves due to a severely progressing illness.
Different from the enduring type, the appointed agent must wait for medical professionals to determine the client’s incapacity to activate the springing POA. During the examination period, essential tasks like bill payments may remain unsolved until the doctors confirm that the POA can come into effect.
Among the many POA categories in Hong Kong, these four are the most prevalent. Although, you might also want to consider other types as they may be subject to different terms depending on the company’s preferences and the applicable laws.
3 steps to drafting a valid Hong Kong power of attorney
Drafting a valid power of attorney (POA) in Hong Kong involves 3 specific steps to ensure that the document complies with legal requirements set out by the relevant authorities.
Below are the essential steps you will need to consider:
Step 1: Navigate the relevant POA Ordinance
The first step is to familiarize yourself with the Power of Attorney Ordinance (Cap. 31). Particularly, creating a general or limited power of attorney requires following a specific form under section 7 of the Ordinance.
Please note that those considering enduring powers of attorney must comply with additional regulations described in the Enduring Powers of Attorney Ordinance (Cap. 501), as this is a distinctive type of POA.
Step 2: Draft the power of attorney
Once you’ve identified the essential components, it’s time to draft the document.
In order to ensure clarity, you should specify the following factors:
- Identify the parties: Clearly define the individuals involved, specifying the person granting the power (the principal) and the person receiving the power (the agent).
- Type of the POA: Specify the type of POA you are creating, such as general, limited, or enduring.
- Scope of the authority: Define the extent and limitations of the authority granted to the agent. Be explicit about what actions the agent can and cannot take on your behalf.
Don’t forget to include the important details to avoid misunderstandings and disputes later on. You can also consider notarization for added validity.
During this phase, it is advisable to consult with a legal professional to gain a comprehensive understanding of the requirements for effectively drafting a suitable POA.
Step 3: Get the document verified by the principal
Under the Ordinance, the creation of a POA requires the document to be signed and sealed by the person granting the power (the grantor), or by their direction and in their presence through a qualified solicitor. Thus, this verification process requires the presence of two additional witnesses who will confirm the validity of the document.
Upon verifying the POA, certified true copies of the original document can then be made to implement the delegated powers.
What if the company already issues a POA in a foreign country?
In cases where a power of attorney is issued in a foreign jurisdiction, certain formalities for notarization and legalization must be observed. For instance, a power of attorney issued in mainland China requires authentication by the Chinese Foreign Ministry.
There may be other procedures in other jurisdictions, but in most cases, they must be authenticated by the Foreign Ministry of that country as well.
To wrap up
Shortly put, the Power of Attorney is a vital legal tool that assists individuals and entrepreneurs in steering their Hong Kong businesses with the expertise of professional service providers. Having a deep understanding of this document will unlock a multitude of advantages if you wish to venture into this fast-paced industry.
On that note, in case you have any questions or uncertainties about operating your business in Hong Kong, our team is here and ready to assist you. Reach out today via service@bbcincorp.com for more support from BBCIncorp.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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