The right to enter into a binding contract with a company is based either on a legal right of representation or on a given power of attorney. The right of a statutory representative, such as a managing director or a member of the board of directors, to conclude contracts on behalf of the company is based directly on his or her position in the company. Similarly, the representative status may also arise by virtue of a power of attorney. Both situations giving rise to the right of representation are discussed below.

 

Statutory representatives and their eligibility to conclude the contract

Limited company

The limited company is represented by a Board of Directors. In principle, no individual member or chairman of the Board of Directors is entitled to represent the company alone, in which case an agreement with the company would require approval by the General Meeting or, alternatively, the signature of all members of the Board of Directors.

In practice, such an approach is not ideal, at least in the largest companies, and the articles of association may provide for the right of representation of a limited company to be granted to certain persons on the basis of their position. The articles of association may thus provide that the chairman of the board, the other members of the board, alone or jointly, or the managing director are entitled to represent the company by virtue of their position. It is also possible for the statutes to provide for the right of the board of directors to confer the right of representation on certain designated persons. In this case, the right of representation is personal and not based on the person's position in the company.

The Managing Director has the right to represent the company on behalf of his or her position, as laid down in the Companies Act. However, this right of representation is limited to the day-to-day management of the company. It is of course possible that the scope of the Managing Director's power of representation may be increased by a provision in the articles of association or by a decision of the board of directors. It should be noted that the managing director may not conclude a binding agreement on a matter outside the scope of the company's day-to-day management, such as a contract for the sale of real estate, without a decision or authorisation by the board of directors.

Partnerships

In the case of partnerships, the general partners of a general partnership and the general partners of a limited partnership have a statutory right to represent the company alone and to conclude agreements binding on the other partners in matters within the company's sphere of activity. The silent partner in a limited partnership has no legal right of representation. A binding contract is created by the signature of even one (responsible) partner. However, the partners may derogate from this main rule by means of a mutual agreement which, when entered in the Commercial Register, is effective for the third party. It should be noted, however, that even restrictions on the power of representation which are not entered in the Commercial Register are binding on the company's contractual partner if the latter has been aware of the restrictions agreed between the partners. Furthermore, every general partner, except the silent partner, has the statutory right to prohibit other members from signing a specific, individual contract on behalf of the company.

If the intended transaction does not fall within the scope of a general partnership or a limited partnership, the agreement must be concluded with the consent of all the partners. If the agreement is concluded despite the prohibition, the general partnership is not bound by such an agreement. A silent partner has no right of prohibition or representation in a limited partnership without a separate authorisation. If a partnership has a managing director who is not a partner, he has the right to represent the partnership in day-to-day affairs as in a limited company.

Both a limited liability company and a partnership can also be represented by proxy or power of attorney. A power of attorney may, for example, be granted to a silent partner.

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Power of attorney, power of attorney or procuration

In addition to the legal representation described above, the right to represent the company may be based on an express power of attorney or proxy. An authorisation is an expression of the will by which the authoriser becomes a party to a contract with a third party. Authorisation to act on behalf of the company may be given by the board of directors, the managing director or any other representative of the company within the limits of his or her competence. To be valid, an authorisation must be signed by a person qualified to give such authorisation on behalf of the company. As a general rule, therefore, no person may give a power of attorney broader than his own capacity to act.

A third party may establish the validity of the representative of its contractual partner by means of a power of attorney, a statement by the authorising party or the status of the authorised representative. In addition, the authorisation may be based on a communication from the delegator to the delegatee. The delegator may always withdraw the authorisation if he so wishes.

A procuration is a commercial power of attorney that can be issued by a trader registered in the Trade Register. In a limited company, a procuration, or general authorisation, can only be issued by the board of directors, whereas in a partnership it requires a joint resolution of all the general partners. The authorised signatory may act on behalf of the principal and sign the principal's business name. However, without a special power of attorney, the attorney may not transfer or mortgage the principal's immovable property, leasehold rights or mortgages. The power of representation of an authorised signatory may, if he so wishes, be restricted so that he is entitled to represent the company jointly with one or more authorised signatories or other representatives of the company. The power of attorney may be entered in the Commercial Register or may be given in another evidential form.

Trade registry entries

It is advisable to verify the right of representation of the representative of the contracting company, if necessary, by consulting the extract from the commercial register, as the lack of the representative's eligibility may result in the company not being bound by the contract concluded. It may also be advisable to clarify any restrictions on the right of representation in advance of the conclusion of the contract.

 

Jari Sotka
Lawyer, MBA

Tel. 040 544 0610
[email protected]

Amos Attorneys at Law Oy
www.amoslaki.fi

The author has worked as a lawyer and advocate for more than 25 years, focusing throughout his career on preventing and solving legal problems for small and medium-sized enterprises.