Representing a Company
When concluding contracts and considering the validity of them, the rules about representing companies must be considering. Contracts are invalid if a representative of the company has no authority to represent the company or if the representative has exceeded his authority.
According to the Limited Liability Companies Act a company may be represented by:
the board of directors as a whole;
the managing director in respect of matters related to their work;
a person who has been granted a right of representation in the articles of association or a person who has been granted a right of representation by the board of directors based on a provision in the articles;
a person holding a procuration right within the scope of the right;
a board member when receiving a claim against the company;
a person having implied authority, i.e. authorised by reason of their position in the company.
The Articles of Association may provide that a member of the board of directors or the chief executive officer has the right to represent the company or that the board of directors may delegate this right to its member, the managing director or another designated person.
The managing director has the authority to enter transactions which are within the ordinary course of business. In practice, this means the managing director has for instance authority to sign a contract for the purchase of raw materials if this is necessary for the continuation of the company’s production. However, the managing director does not always have the authority to conclude substantial contracts even though they are in charge of the company’s day-to-day business. Consequently, e.g. a decision to replace the entire machinery for the production of the company’s goods does not necessarily fall within the managing director’s authority although the decision appears to concern the company’s business activities.
A general partnership may generally be represented by all its partners in respect of matters related to the partnership’s business activities. It is, however, possible to make an entry in the trade register removing a specific partner’s right to represent the partnership or requiring two or more partners to act jointly when representing the partnership. Entry in the trade register requires an agreement between the partners. Only restrictions entered in the trade register are effective against third parties who were unaware of the restriction. A general partnership's managing director may represent the partnership in actions within the routine administration. In case that the managing director is also a partner, they have the same authority as the partners which is larger than the managing director’s authority.
Limited partnerships have silent partners and partners with unlimited liability. Generally only partners with unlimited liability have authority to represent the company. Silent partners may be allowed to represent the company with a power of attorney. A silent partner is not authorized to receive claims or summons on behalf of the company. The grant of a procuration right does not require the consent of a silent partner. A managing director of a limited partnership has an authority similar to the managing director of the general partnership.
Employees may sometimes, by reason of their position within the company or with a power of attorney, conclude contracts on the employer’s behalf.
If it is unclear whether a representative of the other contracting party has authority to sign the agreement, it is advisable to check in the trade register whether the person has the authority based on their legal position in the company or has the person e.g. been granted a right of representation or procuration right. If the person has a registered right of representation, it is also important to check whether this right may be used by them individually or jointly with another person. If the person has a procuration right or power of representation, the scope of the authority must be checked to establish whether it extends to the legal act in question.