What is a Power of Attorney?

In reference to offshore company management, a Power of Attorney (POA) is a legal document, which confers the operational and representative rights in the IBC to a particular person. By virtue of the Power of Attorney such person is appointed as representative ("Attorney-in-fact") of the company. A fairly common practice in the offshore services industry is to issue a Power of Attorney by the nominee director to the beneficial owner of the IBC, to act on behalf of that offshore company.

The Power of Attorney can either feature a full scope of representational powers (General Power of Attorney), or it can be limited to some particular rights and activities (Special- or Limited Power of Attorney). On grounds of a Power of Attorney, its holder may open and manage bank accounts, enter into business deals and contracts, open and manage branches and subsidiaries, assume obligations and execute rights on behalf of the offshore company. A company may issue one or several Powers of Attorney, with identical or varying scope of operational rights. Thus the operational activities of the same IBC can be split or shared between several representatives - for instance, by several beneficial owners of the company himself or by their associates or family members.

While the usage of Powers of Attorney is arguably the most convenient method of the practical management of an offshore company by its beneficial owner, it also has certain risks. It may be a valid argument (by some tax authority, for example), that an individual who routinely uses a general Power of Attorney to enter into contracts and obligations on behalf of the offshore company, does in fact control that particular offshore company. Such implication may lead to the dealings between that offshore company and a domestic company, owned by the same individual, being considered as concluded "at arms length". Consequently, such dealings may be disregarded for tax purposes as bogus transactions. From this perspective it may be more appropriate to directly involve the nominee director into the conclusion of contracts and to limit the usage of Powers of Attorney only to those transactions which are not subject to potential controversy.