Reinier advises national and international companies
reinier.russell@russell.nl +31 20 301 55 55A legal entity may only participate in economic or social life if represented by natural persons. Generally, these are the board or director(s). How do you know who’s authorised to represent a legal entity and what can you do if directors representing a legal entity are not authorised to do so?
Representation means that legal acts, which have consequences with regard to external legal relationships, are attributed to the legal entity (such as NV, BV, Vereniging (association), Stichting (foundation)). These legal acts include concluding contracts, placing orders, and banking. The rule of law is that the legal entity shall be represented by the board.
Representative authority can also be vested in persons other than directors. This subject will be dealt with in another newsletter.
The articles of the NV, BV, Vereniging (association) or Stichting (foundation) cannot eliminate the representative authority of the board. However, the articles can attribute representative authority to one or more director(s) in particular. In addition, it is possible that the directors only hold representative powers jointly with one or more non-directors. In practice, the following arrangements (for instance, a clause requiring one or more signatures) are possible:
The representative authority of the board or director(s) is unrestricted and unconditional, unless otherwise provided by law. Unrestricted means the representative powers cannot be restricted to performing certain legal acts or legal acts that do not exceed a certain amount. Unconditional means that the representative authority may not be subject to a valid resolution preceding it.
Despite the representative authority being unrestricted and unconditional, the articles of association of the legal entity may well contain restrictions and conditions with respect to the representation (referred to as internal regulations). One example for a restriction is a transaction limit of EUR 50,000, or the condition that the consent of the shareholders meeting is required for certain actions.
These restrictions and conditions only serve as internal instructions for the board. If a director holding representative authority acts in breach with an internal statutory restriction or condition, the legal entity will, in principle, be bound to the action but the director may be held liable (internally) for the damage suffered by the legal entity.
Exceptions to the unrestricted and unconditional representative authority are possible only to the extent that they result from the law. The most important exceptions include:
Only the legal entity is allowed to invoke a legal restriction. This requires the restriction’s registration in the business register of the Chamber of Commerce. In this event, the other party can claim an extract from which can be concluded that the person it intends to do business holds representative authority.
Russell Advocaten will gladly advise you on establishing a legal entity, drafting articles of association, registration with the Chamber of Commerce, the assessment of whether you are bound by an agreement, and the liability of a director whose conduct is in breach with an internal instruction. Please contact:
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