4.5.8 Role of management board members in representing the company

An important element of the role of directors is whether they can represent the company and, if so, to what extent.

The First Council Directive of 9 March 1968 (68/151/EEC; OJ EC L65/8), with later amendments, emphasizes the importance of the registration of directors in the trade register of the country where the company is registered. In the Netherlands the Chamber of Commerce administers a trade register known as the Handelsregister It is meant to facilitate the freedom of trade between member states by means of clear and transparent tules, thereby enabling third parties dealing with a company to easily ascertain who has the power to represent the company. If a director is entered in the Trade Register as managing director, he may represent the company in all contracts and legal actions, without limitation,1 unless the register shows that more than one signature is required. A provision may be entered in the register that the company can be represented only by two management board members, or by two executive directors.

Third parties may rely on registration in the trade register as exclusive evidence of who may represent the company. Apart from managing directors, who have full power of representation, it is also possible to register a proxy holder with limited power of representation. The Netherlands does not have a system comparable to that of the US, where each officer may represent the company. Under the Dutch system those with the power of representation are either a managing director with full power of representation or a proxy holder with limited power. Others have no registered power of representation (see article 2:130/240 DCC). Under the Trade Register Act, especially section 18, managing directors are obliged to file and update the registrations. This obligation of directors is also mentioned in most articles of association and, although it is an administrative task, it is regarded as important.

Sometimes a company or board may wish to give a limited proxy to one management board member to act alone in certain limited matters, notwithstanding the fact that a two-signature system has been registered. In practice, if two signatures are required, two directors representing the company give a limited proxy in writing to the person who may act alone.2 This could also be done under article 2:129(a)3/239(a)3 DCC as introduced by the Act (hereinafter "DCC (Act)").

As we have seen, a power of representation in the Netherlands is based on registration and article 2:130/240 DCC, which confirms that the company can be represented by the management board and every management board member, provided that the articles of association may determine otherwise. In the UK section 40 of the Companies Act 2006 also determines that the power of directors to bind the company is deemed to be without limit. There is a difference. In the Netherlands, if the articles impose a limit on the management board members, that will not be held against the third party. In the UK, however, if a director has a limit imposed by the articles of association of £1 million, that limitation is deemed to be public knowledge and can be held against the third party because the articles are public.3 In the US, representation power is usually based on position (CEO or president are deemed to have the authority to bind the company), bye-laws, board resolutions or apparent or ostensible authority.4 In the US the authority of an officer is not overtly clear, hence the practice of legal opinions.

In the Netherlands there can be interaal limitations, such as the requirement of the prior approval of supervisory board members or the shareholders' meeting. If a management board member enters into a contract with a third party without such consent, the contract is still valid vis-à-vis that third party, but the management board member will then be held liable internally.5 In other words, the power of representation of management board members is unlimited and unconditional.6 This is different from the UK and the US as described above.

Generally, supervisory board members cannot represent the company. Only in exceptional cases, such as if all the management board members have a conflict of interest, may the company be bound by supervisory board members.

For a one-tier board it will be logical to register only the executive directors and not the non-executives — as persons who can represent the company. This last point also applies to the chairman, who will not have the power to represent the company. If the company so wishes, the chairman and or other nonexecutives could have the power of representation.