Corporate Versus – Power of representation vs. Power of decision
Corporate Versus: Key Concepts, Blurred Lines n°1
What is the Power of Representation?
Definition
The authority to bind the company in dealings with third parties through the signature or action of an authorized body.
Who
The authority to represent the company may be delegated to a director, the person in charge of day-to-day management, a chief executive officer, or a special agent.
Effects
The authorized body may enter into contracts, hire employees, and make commitments to external partners; in principle, its actions are binding on the company even in the absence of a validly adopted internal resolution.
Limits
The articles of incorporation may specify the rules governing representation. These rules must be published in order to be enforceable against third parties.
What is the Power of decision?
Definition
Ability to organize the company’s internal management and take important decisions.
Who
The board of directors or the sole director (S.A.), the board of managers or the sole manager (S.à r.l.), the president (SAS), the person responsible for day-to-day management (within the scope of day-to-day management),…
Effects
The competent body holding managerial authority oversees the conduct of the company’s business and sets its strategic direction. it organizes the internal operations of the company, assign responsibilities, and decide on the measures necessary to achieve the company’s corporate purpose. This involves determining the decisions to be made and the means for implementing them. The decision-making body may also decide to delegate the execution of a specific decision to a third party, or to grant that third party the power of representation.
Limits
The governing body must act within the limits of the company’s purpose, the articles of incorporation, and the law. Certain actions are reserved for general meetings or the shareholders (such as amendments to the articles of incorporation or the approval of financial statements). General delegation of decision-making authority to a third party is prohibited.
In short
In practice, a manager or director may hold both powers or only one, depending on the articles of incorporation, so that a document may be validly signed (representation) but without a valid internal decision (management), thereby opening the door to a claim against the signatory’s liability.
Conversely, an act approved by the governing body but signed by a person who lacks the authority to act on behalf of the company would not validly bind the company.
➡️For any questions regarding corporate law, please contact Nicolas Bernardy, Sébastien Rimlinger ou Laetitia Villaume.