The issue of representation when concluding contracts with members of the management board of a limited liability company

A common corporate practice involves situations where members of the management board conclude the contract with the company they represent.

Such actions can appear problematic, as the board members simultaneously represent both the interests of the company and their own, which may lead to internal conflicts.

To eliminate potential abuses and to prevent legal actions being effectively undertaken “with oneself,” Article 210 of the Commercial Companies Code has been established.

To avoid problems regarding the validity of legal acts between members of the management board and the limited liability company, and to prevent potential consequences related to the performance of such contracts, the lawyers of the Law Firm recommend the following solutions:

• introducing to the company agreement a supervisory body– i.e. a supervisory board, or
• appointing of a proxy based on a resolution of the shareholders’ meeting.

Representation of the company by the supervisory board

Representation of the company by the supervisory board can be carried out through action of the entire board or by a designated (authorized) member. Therefore, if under the company’s articles of association, internal regulations, or a shareholders’ resolution, a selected board member may act on behalf of the supervisory board, this member signs the contract on behalf of the company. If not, the supervisory board must adopt an appropriate resolution before it can enter into a contract with a management board member.

Representation by a proxy appointed by the shareholders’ resolution

A slightly more complex situation arises in companies that do not have a supervisory board. In such cases, it is necessary for the company to appoint a proxy via a shareholders’ resolution to perform the specific legal actions listed therein. In this case, it is the appointed proxy, acting as an objective representative, who signs contracts on behalf of the company with the board members.

Key doubts arise regarding whether it is permissible to appoint a board member, company proxy, or employee of the company as such a proxy. Legal scholarship holds that granting a power of attorney to the very board member with whom the contract is to be concluded is inadmissible, as it would circumvent the regulation. However, it is acceptable for another board member, a proxy, or an employee of the company to act as the proxy.

The safest solution is to appoint a third party, entirely independent of the company, as the proxy. This ensures that the transaction cannot be effectively challenged at any stage.

Representation in a single-member company

A different situation arises when the sole shareholder of the company is also its sole management board member. In this case, the regulation concerning a proxy appointed by shareholders’ resolution does not apply. However, such a contract will only be valid if concluded in the form of a notarial deed. In such situations, the notary is required to notify the registration court of each legal action by sending an excerpt of the notarial deed.

In case of doubts regarding company representation, it is advisable to consult a lawyer, as these types of legal acts often raise numerous contentious and legally ambiguous issues.