Relationship to third parties and representation of a limited joint-stock partnership, part 2
The relationship to third parties and the representation of a limited joint-stock partnership are regulated in the Code of Commercial Companies. The regulations of the Code define, inter alia, the rules of representing the company, i.e. representing the company in relations with other business entities. As a rule, general partners are the legal representatives of the company, hence they have the right of representation. The role of shareholders in a limited joint-stock partnership consists primarily in contributing capital to the company. However, if a shareholder is interested in representing the company outside, he has the option to do so. For this purpose, general partners must authorize the shareholder - a power of attorney or a procuration.
Representation of a limited joint-stock partnership by a shareholder
A shareholder may represent the company only if empowered to do so by the general partners. It should be noted that the scope of the shareholder's authorization will not be equal to the authorization of a general partner who, under the law, is authorized to perform all court and out-of-court activities on behalf of the company. A power of attorney granted to a shareholder may take the form of a general, generic or specific power of attorney, therefore the scope of the shareholder's activities is limited to some extent. Importantly, the shareholder may not act on the basis of an implied power of attorney (per facta concludenta), because then he would not be able to disclose the document of his authorization to act on behalf of the company. Moreover, if the general partners wish to authorize a shareholder to perform a legal transaction on behalf of the company, the validity of which is provided for in a special form, the power of attorney must be granted in the same special form.
The Commercial Companies Code expressly grants the possibility of granting a power of attorney to a shareholder, but there should be no doubts as to the possibility of granting a power of attorney as a special type of proxy. In business transactions, the procuration is often referred to as the "commercial power of attorney".
Consequences of a shareholder's failure to disclose authorization to act, exceeding its scope or acting without authorization
If a shareholder is to perform a legal act on behalf of the company, before making the act, he should disclose the basis of his authorization, which should be made verbally and then by submitting a power of attorney.
Pursuant to Art. 138 § 2 of the Commercial Companies Code
If a shareholder performs a legal act on behalf of the company without disclosing his power of attorney, he is liable for the consequences of this act towards third parties without limitation; this also applies to the representation of the company by a shareholder who is not authorized or exceeds its scope.
Failure to disclose the authorization or exceeding its scope shall result in the shareholder's liability to third parties personally, primarily and without limitation for the consequences of the activity performed.
Disclosure of the power of attorney by the shareholder is particularly important for the security of business transactions. It is intended to protect third parties against the risk of concluding contracts in the belief that they are dealing with a person having a statutory right to representation and bearing unlimited liability for obligations. Interestingly, the same obligation was not imposed on a general partner deprived of the right to representation by changing the company's articles of association. Thus, such a general partner does not have to show his authorization before making a legal transaction on behalf of the partnership.
A shareholder is also liable in the event of a legal transaction exceeding the scope of his authorization. The difference is that in such a case, the act may be confirmed by the general partner authorized to represent the partnership. Confirmation will be possible when it comes to the concluded contract. The other party may set a deadline to confirm the contract and then:
in the event of refusal to confirm or ineffective expiry of the deadline - the contract is invalid from the beginning;
if the contract is confirmed - it is valid from the beginning.
In the above example, we are dealing with a bilateral action - the acting are the shareholder exceeding the scope of the authorization and the other party. On the other hand, in the event of a unilateral act by a shareholder, e.g. granting a power of attorney, the validity of the action depends on whether the person to whom the declaration of will has been submitted has agreed to act without authorization.
There are also situations where a shareholder performs legal acts on behalf of the company without authorization at all (in the first case, the shareholder acted on the basis of an authorization, which he did not disclose, and in the second - exceeded the scope of the authorization granted). Then he is responsible for the effects of the action performed on the same terms, i.e. primary, personal and without restrictions. And such action may be confirmed by the general partner authorized to represent the partnership. However, the confirmation will not change the rules of liability - the shareholder will still be liable for the consequences of such action.
It is worth paying attention to a situation in which the effects of a legal act performed by a shareholder without authorization are beneficial for the company. It is the shareholder who is responsible for the consequences of this action, so potential creditors will pursue claims against his property. However, as the agreement has proved to be beneficial to the company, the shareholder will be entitled to bring a claim against the company for settlement.
The nature of the provisions governing relations with third parties
The principles described above are mandatory standards. This means that the provisions of the articles of association of a limited joint-stock partnership that are inconsistent with the provisions of the Code do not have legal effects towards third parties. Such structure of regulations serves to protect the interests of third parties entering into commercial relations with limited joint-stock partnerships.