DIFFERENCES BETWEEN THE CONDUCT OF THE STATUTORY BODY AND THE RESTRICTION OF THE EXECUTIVE BODY´S POWER TO ACT ON BEHALF OF THE COMPANY

#34Differences between the conduct of the statutory body and the restriction of the executive body´s power to act on behalf of the company

Amendment to the Act No. 513/1991 Coll. Commercial Code as amended (hereinafter referred to as “Commercial Code”) by Act number 390/2019 Coll. No. 390/2019Z.z. amending Act No. 513/1991 Coll. Commercial Code as amended, amending certain laws by Section 13 Par. 4 introduced restriction of the executive body´s power to act on behalf of the company.

The aim of the legislature was to emphasize the ineffectiveness off such a restriction of entitlement vis-á-vis third parties. In practice, a distinction must be made between determining the method of statutory action on behalf of the company and restricting the power to act on behalf of the company as they are not identical.

The mentioned amendment introduced the obligation to harmonize entries in the Commercial Register concerning the restriction of the statutory body to act on behalf of a legal entity when submitting the next proposal for registration of a change in the entered data, no later than September 30th, 2021. The registry court will invite the applicant to rectify the deficiencies within 15 days. Otherwise, after the expiration of the time limit, the registration court will not take into account the proposal to register the change of data and at the same time will impose a fine of up to 3.310,- € on the company´s executive body.

Manner in which the executive body acts expresses the will of the legal entity towards third parties, in accordance with the provisions the Commercial Code and in accordance with the agreement in the articles of association or statutes. Failure to comply with the procedure results is the invalidity of a legal act. For example, if it is a multimember executive body and the minimum number of persons exercising the powers of the executing body has not been complied with in the legal act.

The manners of acting are:

1. separate action of any member,
2. joint action of all members,
3. joint action of several members,
4. designation of a person who may act jointly with any one or more other members,
5. separate or joint action of persons expressly (namely) designated,
6. definition of actions in which all must act together,
7. treatment for written acts different from treatment for oral acts.  

Commercial Code does not define the scope of restrictions on the acting of the statutory body. The articles of association set out the conditions for any act, e. g. for legal acts exceeding the value 10.000,- € the executive needs the prior consent of the general meeting or the supervisory board. However, the restriction is ineffective against third parties, and thus the company will be bound by the actions of the executives, even if the executive did not comply with the conditions set out in the partnership agreement.

The basic difference between the way the executive acts on behalf of the company is, that executive (executives) acts autonomously when creating a will and no third body (general meeting, supervisory board) or third party enters this process of creating the will externally towards third parties, while in the case of restriction of the right to act on behalf of the company, the creation of the will and its expression is always tied to the performance of an act directed inside to the company in order to fulfill the obligations set out in the partnership agreement (submission of deed, obtaining approval of the general meeting or supervisory board).

The restriction of the executive body to act prevents it from circumventing or breaking the established procedure, otherwise such breaking (violation) results in the liability of executive body for damage to the inside of the company and to the partners. The restriction of executive body to act in the commercial register is not recorded, but the manner of the executive body of the company is mandatory entry in the commercial register and is such a procedure with legal effects against third parties.

Finally, we would like to draw the attention to the difference between executive body and procurator. Unlike the executive of the company, the procurator doesn´t act “on behalf of the company” but acts as a representative on the basis of power of attorney. The procurator is not a body of the company, unlike a statutory body.