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Chile Practical Advice: Why are Powers Of Attorneys Important?

Harris Gomez Group has previously wrote about Power of Attorneys (“POAs”) in Latin America are part of “la vida”. Without POAs, it is very difficult to operate.

In a direct business culture clash with common law countries, parties entering into a contract in Latin America must have express and written authority to do so. The most common instrument of doing this is through the use of a POA. Whilst Board resolutions can be used as an alternative for some functions, this is less common. POAs are typically used for instructing professionals including lawyers, accountants, architects, engineers (although not doctors or veterinarians).

As described in our previous posting, often a POA is given to the Chilean company’s General Manager/“Gerente General” or equivalent, to attend to day-to-day functions in its role for the business.  Such functions include entering into employment contracts, leases of office space and/or buildings or business contracts as well as attending to the company’s banking needs.

We continue on this topic discussing in more detail practical tips for providing proper POAs so that the company can operate day-to-day functions smoothly while minimising risk to the companies business. 

The POA is an instrument that indicates the powers that a certain individual has to represent, obligate and act in the name of the company. In addition, a POA will be requested by third parties, with whom this company is doing business in order to have certainty that the person with whom they are doing business can represent the company.

In Chile, almost every legal act, contract or bank proceeding must be done under the umbrella of a written PoA. Indeed, banks do review the scope of PoAs in order to admit the execution of any formal proceeding and it is common that in-house lawyers of banks reject PoAs because in their opinion they are not wide enough or specific enough, many times with questionable criterions.

To facilitate some day-to-day proceedings, banks will register the signature of those individuals with powers to act on behalf of another person or on behalf of a legal entity.

Public agencies are also very keen on this issue and require proper PoAs usually accepting only those granted in a public deed.

Summarising, setting up POA´s is fundamental if you want to operate in a business environment. Both the private and the public sectors will require such documents when transacting with a corporation.

Although General Managers are granted powers to act on behalf of a company directly through the laws that provide managerial powers,  these powers may be restricted according to the company’s` policies.

The wider the powers contained in the PoA, the more practical it is. Nevertheless, this has the drawback of being more dangerous. If the GM, principal or attorney is granted too much power, he/she can be a risk to the business, so the key is trust. Companies need to find the right balance between ‘wide’ and ‘specific’ powers. In some cases, foreign companies give very limited powers in PoAs so the General Manager cannot do anything without the parent company’s approval. This obviously has negative practical impacts on running the business in Chile. Nevertheless, POAs are easy to revoke, so they are safe in that respect.

Managing the risks associated with having POAs in place:

One of the main procedures used to manage the risk involved in handing over power in a corporation is the introduction of what is called “check and balance”, this is a system in which the different parts of an organisation (such as a company) have powers that affect and control the other parts so that no part can become too powerful.

There is no single formula for granting powers. The best power structure will be the one that best fits the company’s activities and individual circumstances.

In short, the powers may be granted using all types of structures and with great flexibility.Powers can be granted in many different forms, such as empowering a person individually, two people to act jointly, or empowering two people to act interchangeably. Furthermore, you can empower a person to act individually but when a specific operation exceeds “x” amount of dollars, you can force him/her to act jointly with another person, who will normally hold a position of higher authority.

If such system is not the one set in place, then definitely the recommendation is granting limited or specific POA´s, with a clear description of their powers and faculties or granting such POA´s to individuals of absolute trust.

Click here for more information on structuring POA´s and implementing a ¨check and balance¨ system.

Harris Gómez Group is a Common Law-Chilean legal and business advisory firm located in Santiago, Bogota and Sydney.  In 2001, HGG was the first Australian law firm to have a local office in Latin America. The firm specialises in Common Law and Latin American cross-border issues in areas such as Mining and Energy, Corporate, Mergers and Acquisitions, Tax, Intellectual Property and Business Enterprises.