The Power of Attorney in Germany

A power of attorney is a document that acts as a written authorization that allows an individual to act in another’s best interests for business or personal purposes. 

The document can be drafted in order to grand broad or limited powers, according to the needs of the principal. He or she can assign the exact powers and will also decide on the duration of the power of attorney. The limited one can be used for short-term tasks, such as opening a company in Germany while the durable one is used when the principal becomes incapacitated and he requires the agent to make crucial decisions on his behalf.

The German Civil Code provides three types of instruments persons can employ to make legal dispositions regarding the delegation of certain tasks or the capability of making decisions on their behalf. These are:

• the power of attorney (vorsorgevollmacht),

• the living will,

• the nomination of a custodian.

Among these, the durable power of attorney is the most employed in Germany. Durable powers of attorney are usually issued for healthcare and for property management, but they are also employed by German companies to delegate certain tasks to third parties. German powers of attorney are usually used to avoid the appointment of a custodian by the court. However, there are cases in which a German court may supervise the actions of the executor of the power of attorney.

The durable power of attorney can be used with one or more individuals who are authorized by the principal on his behalf. Moreover, it may be revoked at any time, provided that the principal remains legally competent. 

Our team of lawyers in Germany can help investors draw up a power of attorney as required for their business or asset management purposes. One of our agents is also able to act as the appointed individual, who will be able to handle many of the requirements for company formation or general management. 

Among the other forms listed above, the living will is used by individuals for the specific purpose of expressing the wishes for prolonging of sustaining life through medical devices and treatment, in case of incapacitation. The medical purpose of this will is obvious and it is also referred to in some cases as a health care directive or a physician’s directive. Our lawyers in Germany discuss more the will in this article. When needed, our team of legal experts can assist individuals who need to contest a will or are involved in litigation over property.

What are the uses of a German power of attorney?

Durable powers of attorney in Germany are usually granted for longer periods of time, some of them maintaining their validity after the donor has passed away. The German power of attorney can be used for multiple purposes, out of which our lawyers in Germany exemplify some in the list below:

• business: grants the power to conclude contracts, to handle company matters on behalf of the beneficial owner or director, if need be; can also be used for company formation purposes.

• asset management: grants the power to handle all and any matters related to managing the assets of the individual granting the rights.

• investment: the agent or the appointed individual can also receive the right to make investment decisions on behalf of the principal or the one granting the rights.

• healthcare: issued when the principal needs an agent to make certain healthcare decisions on his behalf.

A power of attorney may also be used by our team of attorneys in Germany for conducting a lawsuit, for expressing and withdrawing counterclaims. Likewise, for filing motions in divorce cases and concluding agreements as per the conclusions of the divorce proceedings. It can be used for representation in criminal cases and administrative fine matters. The power of attorney can also be used for extrajudicial negotiations as well as representation in any type of proceedings. The principal may also appoint an attorney for the purpose of making and accepting declarations of intent in relation to contractual relationships, for example, for issuing the notice of termination. Once the document is issued for a purpose, it will apply to any other subsequent proceedings related to the purpose. 

What is the format for a power of attorney?

Powers of attorney must be given in writing in Germany. Also, certain powers of attorney among which those to sell a German property must be notarized in order to become effective. The information commonly included in a power of attorney refers to the identities of the agent and the principal and expressly state the powers that are to be transferred and their duration. Some of the information commonly included in this document is as follows:

• Names: the name of the principal and the appointed individual;

• Matter: the matter for which the power of attorney is concluded (substitution, representation, assistance, etc.);

• Specific actions: the document shall detail the actions that may be undertaken by the attorney (the appointed individual);

• Duration: when the document is limited in time, this will be specified; likewise, it shall be specified if the power of attorney is not to be terminated by the incapacity, death, or other situations.

• Others: the document can also include information on how disputes that arise from the mandate may be solved.

German powers of attorney may also be revoked at any time, as needed. They may also be concluded for limited periods of time only. Individuals should know that the powers granted under such a document are not unlimited and they cannot be used to alter the will of the principal, for example. Likewise, it is very important for the agent to observe his fiduciary duty towards the principal.

How is the power of attorney used for business purposes in Germany?

Even if powers of attorney are mostly employed by natural persons, they are also used by German companies. The agent is the person carrying out the activities or making the decisions on behalf of the person issuing the power of attorney. The most common activities companies may delegate to agents are:

• managing bank accounts or safety deposit boxes,

• filing tax returns with the German tax authorities,

• in estate planning activities,

• in asset management activities,

• for debt collection.

Powers of attorney may be general or specific in Germany. While the general power of attorney allows an agent to engage in more than one activity, the specific power of attorney is restricted to certain transactions. The latter is commonly used for business purposes although it is common for foreign investors to conclude a general power of attorney and appoint a trusted representative if they cannot be in the country at all times. 

As previously stated, the power of attorney can be used for multiple business purposes when the company directors or shareholders are unable to handle certain matters. The attorney or appointed individual, who can be one of our lawyers in Germany, as needed, is able to conduct the activities specified in the document. For example, an attorney may, based on a general or specific power of attorney, perform the necessary registrations with the German Federal Ministry of Labor and Social Affairs, for the purpose of hiring employees once a new company is incorporated.

The duties and limitations under a power of attorney should be carefully considered when appointing an agent who will handle the business matters. The business owner or company director may appoint an agent who will have broad powers, such as handling financial matters and making decisions about hiring or firing employees. Once the document is entered into force, the agent will have a duty of care as well as a fiduciary duty to act lawfully and for the best interest of the principal. Failure to do so may result in the agent being held liable for certain actions.

Germany is an attractive country for foreign investors and some of these entrepreneurs do not have the ability to be present in the country at all times. This is when a power of attorney for starting a business is particularly useful. Some of the statistics for company formation in the country, that reflect the positive investment environment, are the following:

• there were 3,481,860 companies registered in Germany in 2017;

• out of the total number of companies, 2.5 million entities were small and medium-sized companies;

• 89% of the total number of companies functioned with a small number of employees, less than ten persons employed per company.

Investors who wish to open a small-medium sized company can use a power of attorney for the purpose of incorporation. 

Using a power of attorney for solving various business and personal issues is useful for many individuals and entrepreneurs. There is no doubt that this document is valuable for business purposes and that it can be used to simplify processes when the entrepreneur is able to delegate some of the activities to the appointed individual. However, the principle should always remain well aware of the powers that are granted and the potential for abuse when not working with trusted individuals. 

It is always recommended to consult with an attorney in Germany before signing a power of attorney. One of our lawyers can advise you on the common practices for your specific needs and can help you decide if a limited or broad power of attorney is needed.

For drafting powers of attorney or legal representation you can contact our lawyers in Germany.