Statutes vs reality: does your representation still match? What if statutes and reality clash?

Companies carry out legal transactions on a daily basis, but are not natural persons and need representatives to perform legal acts and make decisions and sign contracts or other documents on behalf of the company. To determine who can represent the company to third parties, we have to look at the articles of association. The articles of association may stipulate that each director may act separately, but they may also provide that above a certain amount several directors must act together or even require the signature of the entire board of directors. These provisions are also referred to as the "external power of representation".

What happens if the company  is represented in an invalid manner? For example, when a contract is signed by only one director instead of the required double signature. In that case, the company is not legally bound and actions run the risk of being null and void or unenforceable against third parties, which can of course create uncertainties. Especially in contracts with public authorities (such as tenders for public tenders), incorrect representation can lead to exclusion from participation in the public tender or annulment of the awarded contract.

The internal management power can be limited by the articles of association within certain limits. If a division of tasks is agreed between the directors or if it is agreed that each director may take a decision separately without a board meeting, these agreements are valid in the mutual relationship between the directors and with regard to the company. In the event of a violation (e.g. exceeding their authority), the directors can be held personally liable for any damage resulting from this for the company.

The external power of representation (the power to enforce the decision that has been made internally (whether correctly or not) vis-à-vis third parties and thus to legally bind the company) can only be limited in the manner prescribed by law, even if these restrictions have been recorded in the articles of association and published in the Annexes to the Belgian Official Gazette. Quantitative (up to a certain amount) or qualitative (e.g. employment contracts may only be signed by a certain director) restrictions on the external power of representation cannot be invoked against third parties. Suppose that the articles of association stipulate that one director is individually authorised to sign agreements up to and including an amount of €50,000, then the company will still be legally bound if that director has made a purchase for an amount exceeding €50,000. The intention is to protect third parties or co-contractors, such as customers or suppliers, against internal agreements and mutual divisions of powers, as well as to limit the duty of investigation for these third parties to the inspection of the persons who are authorised to legally represent the company and not to extend it to the examination of their specific powers. Multiple signature clauses (provisions in the articles of association that prescribe that two or more directors must sign jointly) are valid and enforceable against third parties.

In short, the articles of association determine the limits for the (internal) actions of the board, while the law sets the limits for (external) action. Because violating the limitations of powers under the articles of association can lead to uncertain situations, it is important to regularly check whether the existing statutory provisions still meets the needs of practice and, if necessary, to amend the articles of association. However, an amendment to the articles of association is not necessary in all cases. Special powers of attorney can also be drawn up to delegate specific powers to persons who may or may not be directors of the company. Consult with a specialist about the best option for your company and prevent your company from not having a legally valid contract.