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By: Thomas Schutte, Esq.
Russell Advocaten B.V.
Amsterdam, Netherlands

A legal person is, in principle, represented by the management board. Authority of representation can also be conferred to other parties than the management board and directors. When are non-directors permitted to represent a legal person? What are the consequences of unauthorized representation?

A legal person has to be represented, for instance, to be able to conclude contracts, conduct legal proceedings, or to purchase or encumber real estate. Other parties than the directors (see our newsletter Good governance: Who’s liable – the legal entity or the directors?) may also represent the legal entity pursuant to the articles of association of the legal person or by granting authorisation.

Representation pursuant to articles of association
The articles of association of the legal person (BV, NV, association, foundation) may grant authorisation of representation to other parties than the management board. In this case, a separate authorisation is not required. To create or change this kind of authorisation, the articles of association need to be changed however. As this can often be difficult, in practice, mostly the approach of authorisation is adopted.

Representation pursuant to authorisation
The directors or the representatives under the articles of association can also confer their authority of representation to third parties by granting power of attorney. These parties become authorised persons (also referred to as proxy holders). The management board grants authorisation by means of a management decision. Preparing an authorisation requires a customized approach and the necessary expertise.

An authorisation can also be the (implicit) consequence of a certain position or appointment. Thus, a sales person has authority to conclude a sales contract with a client on behalf of the store.

General or limited
The authority of representation of non-directors may be general or limited. By granting a general (‘full’) authority, the proxy holder is authorised to perform any legal acts in each area the grantor also holds authority for. The scope of the limited (‘special’) authority is determined by the articles of association or the text of the authority. An authority may thus be limited to transactions of a certain value (“up to EUR 50,000”) or to conduct certain transactions (“concluding leasing contracts”).

Registration in the Commercial Register
Authority – and its scope – can be registered in the Commercial Register of the Chamber of Commerce. The legal person is obliged to state its representatives under the articles of association. It is not required to register the proxy holders. However, it is advisable to do so as (possible) limitations of authority can only be enforced against third parties if het authority has been registered.

Unauthorised representative

It may be the case that the counterparty is of the opinion to be dealing with a representative appointed by the legal person, whereas the person in question is not authorised. In principle, an unauthorised person cannot lawfully represent the legal person and a contract concluded with a pseudo-representative will not be binding on the legal person. Fooled!

If the legal person has contributed to creating an appearance of authority of representation (for instance, by allowing the pseudo-representative to take the lead in the negotiation of contracts, or by failing to give information about the scope of the authorisation), it may possible that the legal person will be bound by the contract nevertheless. This is the case when the counterparty on the grounds of facts and circumstances was entitled to rely on the pseudo-representative to be authorised.

Action

  • Check or have checked by a lawyer whether the power of attorney you wish to grant or the powers of representation under the articles of association you want to confer are legally correct.
  • Check before concluding a contract with a (self-declared) representative whether this person actually has authority to represent.

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