Representation of the company in contracts with a member of the management board

The Commercial Companies Code provides for certain exceptions to the above rules on representation. These are situations in which the company enters into a contract with a member of the management board. Most often, this takes the form of an employment contract or a management contract. In such cases, the general power of the management board to represent the company is excluded. The reasons for this arrangement are quite obvious, as they serve to avoid conflicts of interest between the parties and to protect the interests of the company, the shareholders and the management board members themselves. The Commercial Companies Code also provides for an additional provision in cases where the contract is concluded between the company and the sole member of the management board, who is also the sole shareholder of that company.

Contract with a member of the management board

With regard to a limited liability company, Article 210 of the Commercial Companies Code provides that:

• 1. In a contract between the company and a member of the management board, and in any dispute with that member, the company shall be represented by the supervisory board or by a proxy appointed by a resolution of the shareholders’ meeting.
• 11. A resolution appointing the representative referred to in § 1, appointed for the purpose of concluding a contract with a member of the management board using a standard form, may be adopted using the standard form made available in the ICT system.
• 2. Where the shareholder referred to in Article 173 § 1 is also the sole member of the management board, the provision of § 1 shall not apply. A legal transaction between that shareholder and the company represented by him or her shall require the form of a notarial deed. The notary shall notify the registry court of each such legal transaction via the ICT system.
• 3. The requirement to adopt the form of a notarial deed referred to in § 2 shall not apply to a legal transaction carried out using a template made available via the ICT system.

In turn, with regard to a public limited company, Article 210 of the Commercial Companies Code provides that:

• 1. In an agreement between the company and a member of the management board, as well as in a dispute with such a member, the company shall be represented by the supervisory board or by a proxy appointed by a resolution of the general meeting.
• 11. A resolution appointing the representative referred to in § 1, appointed for the purpose of concluding a contract with a member of the management board using a standard form, may be adopted using the standard form made available in the ICT system.
• 2. Where the shareholder referred to in Article 302 § 2 is also the sole member of the management board, the provision of § 1 shall not apply. A legal transaction between that shareholder and the company represented by him shall require the form of a notarial deed. The notary shall notify the registry court of each such legal transaction via the ICT system.
• 3. The requirement to adopt the form of a notarial deed referred to in § 2 shall not apply to a legal transaction carried out using a template made available in the ICT system.

The above provisions are mandatory (ius cogens). They may not therefore be modified in the articles of association.

Who may act as the company’s representative in an agreement with a member of the management board?

The Commercial Companies Code imposes no restrictions as to who may act as the company’s representative in an agreement with a member of the management board. There are differences of opinion in legal doctrine as to whether another member of the company’s management board may be appointed as such a representative. Some authors are of the view that this is permissible since the Commercial Companies Code does not exclude such a possibility and it falls within the scope of the freedom to decide on the choice of a representative. Those holding the opposite view, however, consider that a member of the management board cannot act as a proxy under Article 210 of the Commercial Companies Code, as this would effectively mean that the company would be represented by the management board in dealings with the management board, and a conflict of interest would still exist.

Reference should also be made to the form in which the power of attorney under Article 210 of the Commercial Companies Code is to be granted. Legal doctrine agrees that a resolution appointing a special proxy may be adopted in the ordinary written form. A resolution appointing a company representative under Article 210 of the Commercial Companies Code is subject to the regime set out in the provisions of the Commercial Companies Code, to which the provisions of the Civil Code apply by analogy.

The Supreme Court expressed a similar view in its Judgment of 15 June 2012, file ref. II CSK 217/11, LEX No. 1218535, which stated that “Under commercial company law, a power of attorney granted for the purpose of representing the company in contracts and disputes with members of the management board is subject to separate, specific regulations (Article 210(1) and, mutatis mutandis, Article 379 of the Commercial Companies Code). The appointment of a proxy takes place under a special procedure, on the basis of a resolution of the shareholders’ meeting. Legal doctrine emphasises that a proxy appointed on the basis of such a resolution is not a company proxy in the strict sense, as his authority does not derive from a declaration of intent by the members of the management board—the body authorised to represent the company—but rather he is a special representative known as a corporate or organisational proxy. The appellant correctly pointed out that where a resolution is adopted by the ‘shareholders’ meeting’, i.e. a body lacking independent competence for ‘external’ representation, it must be assumed that the agent’s authority derives from a specific act of ‘internal management’. The source of authority referred to in Article 210(1) of the Commercial Companies Code thus differs fundamentally from the source of power of attorney regulated in the Civil Code. The specific nature of the power of attorney provided for in Article 210 of the Commercial Companies Code is also evidenced by the limited scope of its powers, as compared to a ‘civil’ power of attorney. This power of attorney covers only legal acts and disputes in which the company’s counterparty is a member of its management board. Within the specified scope, the attorney-in-fact acts, as it were, as a substitute manager for the purpose of performing strictly defined acts which fall within the sphere of competence of the management board as a body of the company.”

Limited liability limited partnership

The above considerations also have a very significant impact on the structure of a limited partnership, common in the Polish legal system, in the form of a so-called “limited liability company of a limited partnership”. In such a limited partnership, the partners of the limited liability company (the limited partner of the limited partnership) and the members of its management board are very often the partners (most commonly limited partners) of the limited partnership.

The Supreme Court, in its Resolution of 7 September 2018, ref. no. III CZP 42/18, LEX No. 2541937, ruled that “If a member of the management board of a limited liability company is, together with that company, a partner in a limited partnership, Article 210 of the Commercial Companies Code applies to the limited liability company’s consent to an amendment to the limited partnership agreement – required under Article 9 of the Commercial Companies Code. The risks outlined above, which constitute the rationale for the introduction of specific rules on the representation of a limited liability company under Article 210 of the Commercial Companies Code, arise not only at the stage of concluding a limited partnership agreement, but also when amending the partnership agreement (Article 9 of the Commercial Companies Code). A conflict of interest between a member of the management board and the limited liability company may lead to a situation where, as a result of an amendment to the limited partnership agreement, provisions are introduced into the limited liability company’s articles of association that directly harm the interests of the limited liability company as a partner in that partnership; for example, a member of the management board, as a limited partner in the limited partnership, may take actions leading to an amendment in the articles of association regarding the determination of the limited partnership capital (a reduction in the limited partnership capital), which may lead to a reduction in the scope of his liability for the company’s obligations; as a result of an amendment to the limited partnership agreement, it is also possible to increase the contributions of the limited liability company, as a partner, to the limited partnership by creating an obligation to make ‘additional’ contributions to the partnership.”

The purpose of Article 210 of the Commercial Companies Code is to protect the interests of a limited liability company, and indirectly also those of its members and creditors, in the event of a conflict of interest which may arise where a member of the management board enters into a contract “with himself”, i.e. where the same persons are parties to both sides of the contract.

According to the prevailing view in legal doctrine, the sanction for a breach of the company’s representation under Article 210(1) of the Commercial Companies Code is the absolute nullity of the legal act. The literature also contains the view that the sanction for a breach of the rules of representation is the invalidity of the contract, which may be ratified pursuant to Article 103 of the Civil Code.

From the perspective of commercial transactions, the institution of a proxy representing the company in contracts with a member of the management board fulfils an important function. In this case, the protection consists of eliminating the possibility of a management board member acting in a dual role: as a representative of the company’s interests and as a representative of their own interests. This prevents abuses that might arise if a management board member were to act in their own interest, which conflicts with the company’s interest. If you are interested in issues such as contracts with board members, Article 210 of the Commercial Companies Code, or have any other queries regarding the relevant legislation, please contact HWW Hewelt Wojnowski Lindner i Wspólnicy.

Author

Adrian Łukasik

Radca prawny, Senior Associate

He gained his professional experience in one of Lublin's renowned law firms, dealing with civil and business law in its broadest sense. At the law firm Hewelt Wojnowski i Wspólnicy spółka komandytowa, he deals on a daily basis with current counseling in the field of business and the development of corporate documentation of companies, such as. Company agreements, bylaws of company bodies, agreements regulating relations between shareholders, resolutions of company bodies, M&A transactions. In addition to…

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