Representation of limited liability company by statutory representatives and its limits
When founding and operating a limited liability company, its members usually deal with the issue of setting up its corporate governance and defining the powers of the statutory representatives (executives). In this article, we will present the basic possibilities of limiting the statutory body’s power to act on behalf of the company, and the consequences of the breach of such limits.
By operation of law, if a limited liability company has more than one statutory representative (executive), each of them alone is a statutory body with full power to act within and without the company (vis-à-vis third parties). Members may specify in the memorandum of association that all statutory representatives as a collective body (referred to for instance as the board of statutory representatives or the executive board) shall be the statutory body. The board shall then adopt decisions collectively, similarly as a board of directors in a joint stock company, by at least a simple majority of its members present at the meeting, unless the memorandum of association stipulates otherwise.
The memorandum of association may also specify the manner of the statutory representatives’ acting on behalf of the company. The information on the manner of representing the company is recorded in the Commercial Register and is publicly available. The most common manners of representing a company with multiple statutory representatives are:
- each statutory representative acts independently in all matters
- two and/or more statutory representatives act jointly in all matters
- statutory representatives act jointly only to enter into contracts exceeding a certain value, dispose of real property owned by the company, etc.
In principle, one of the statutory representatives may be completely prevented from acting independently on behalf of the company by making their acting conditional upon the co-signing by another statutory representative. If the statutory representative then acts contrary to the manner recorded in the Commercial Register, such legal acts shall not be binding upon the company, not even vis-à-vis third parties. This means that if one of the statutory representatives on their own enter into a contract on behalf of the company where the joint signature of two statutory representatives is required, the contract shall be invalid.
Statutory representatives’ acting in any matter may also be made conditional upon the consent of another body of the company – most often the general meeting or the supervisory board, by stipulating this in the memorandum of association. However, such restriction shall not be effective vis-à-vis third parties, not even if it has been published in the Commercial Register; legal acts made by statutory representatives in breach of such restrictions remain valid and the company shall be bound by them, even if the third party knew of the restriction. A statutory representative who has acted without the required consent of another body shall be liable to the company for such acting beyond their powers.
The only case where the company shall not be bound by a contract entered into without the consent of the required body are legal acts where the general meeting’s consent is also required by law (e.g. entering into a contract for the transfer or pledge of a business establishment). A contract concluded without the supreme body’s consent shall be invalid; its invalidity may be invoked within six months of the date on which the invoking person became (our could have become) aware of the fact that the general meeting’s consent had not been given. However, the validity can only be challenged within 10 years of the contract’s conclusion.