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Who is authorized to represent a company? Authority of managing directors, authorized signatories, and authorized agents.

Written by Andreea Pop on . Posted in Uncategorized.

Authority of managing directors, authorized signatories, and authorized agents in commercial and corporate law

Who is authorized to legally represent a company – and how far does this authority actually extend?

This question is of central importance in commercial and corporate law and is also a frequent source of liability and compliance risks.

Managing directors, authorized signatories, and authorized agents each have different forms of authority that significantly differ in scope, legal basis, publicity, as well as liability, and control duties. Errors in assigning or exceeding authority can lead to the invalidity of legal transactions, personal liability, or severe compliance violations.

The following article provides a systematic overview of the authority of managing directors, authorized signatories, and authorized agents. The focus is on

  • the legal differences, the registration requirements in the commercial register,
  • the limits of each power of attorney, and
  • the practical implications for corporate practice, governance, and compliance.

 

1. Authority in the Company

The effective design of authority and management powers is a key issue in modern corporate governance in capital and partnerships. Particularly important in practice is the interplay between managing directors, authorized signatories, and authorized agents, as it determines the legally permissible competencies, liability risks, and the internal control architecture of the company.​

From a legal perspective, three levels can be distinguished:

  • the statutory organizational position (e.g., managing director of a GmbH),
  • the commercial power of attorney as a “strong” form of arbitrary authority,
  • the power of attorney as a flexibly configurable but significantly limited authority.​

Overview of Authority

Function Legal Basis Scope of Authority Signature
Managing Director GmbHG / AktG Comprehensive (cannot be limited towards third parties) –
Authorized Signatory §§ 48 ff. HGB Comprehensive (legally fixed) ppa.
Authorized Agent § 54 HGB Ordinary business operations (restricted) i. V. / i. A.

2. Managing Director: Organizational Position with Overall Responsibility

Managing directors of corporations (e.g., GmbH) are statutory organs whose authority of representation derives directly from the law and the articles of association/partnership agreement. They legally represent the company in and out of court and bear overall responsibility for proper management, including compliance with public law obligations (tax law, insolvency law, supervisory law, etc.).

2.1 Scope of Organizational and Authority Powers

Externally, the authority of managing directors is generally unrestricted and cannot be restricted; restrictions in the articles of association or in company rules (e.g., approval reservations, four-eyes principle) are primarily effective internally. Typical competencies in day-to-day business are:​

  • Conclusion of all types of contracts, as far as they are covered by the company’s purpose (supply and service relationships, financing contracts, rental and leasing contracts).​
  • Personnel authority, in particular the conclusion and termination of employment contracts with employees and senior executives, provided there are no shareholder-related reservations.​

Furthermore, managing directors have an obligation to organize the company, including appropriate delegation, selection, and supervision obligations towards authorized signatories and other senior employees.​

2.2 Duties and Liability Risks

Managing directors must exercise the care of a prudent businessman and are liable for damages caused to the company through culpable breaches of duty. The central duties include:​

  • Establishment of an adequate compliance and control system, particularly when delegating tasks to authorized signatories and authorized agents.​
  • Obligations to file for insolvency, capital maintenance rules, tax care obligations, and reporting obligations to shareholders and supervisory bodies.​

In liability practice, it is crucial whether the delegation to subordinate functionaries was properly organized, documented, and monitored. If the management fails to do so, organizational and supervisory liability applies – regardless of the fact that authorized signatories and agents carry independent responsibilities.​

3. Authorized Signatory: Extensive Commercial Power of Attorney

The power of attorney is a special commercial power of attorney according to §§ 48 ff. HGB or §§ 48 ff. UGB and can only be expressly granted by a merchant or entrepreneur within the meaning of corporate law. It must be entered in the commercial register/company book and authorizes all types of court and out-of-court business that the operation of a commercial enterprise entails.​

3.1 Scope and Limits of Power of Attorney

In principle, the power of attorney covers all typical and also extraordinary business of the company, such as:

  • Conclusion of major supply and framework agreements, taking out loans, acquisition and sale of movable goods, personnel decisions.​
  • Litigation, settlement of disputes, representation before authorities and courts, as long as these transactions serve the operation of the company.​

On the other hand, certain fundamental transactions are legally excluded, such as changes to the company name or purpose, amendments to the articles of association, capital measures, or dissolution of the company. Real estate transactions (sale/encumbrance) generally require special, expressly granted authorization that goes beyond the “bare” power of attorney.sp-unternehmerforum​

3.2 Internal Relationship, Delegation and Liability

Internally, the scope of the power of attorney is specified by the employment contract and instructions from the management (e.g., monetary limits, four-eyes principle, approval requirements). These internal restrictions are generally irrelevant to third parties as long as an unrestricted power of attorney is registered; however, they have considerable labor and liability significance.​

In terms of liability, the authorized signatory is considered an arbitrary representative with increased diligence requirements:

  • Civilly, they are liable as an agent for culpable breaches of duty in business management and for violations of instructions.​
  • In Austria, recent case law has recognized that authorized signatories can be personally liable for tax debts when taking over tax tasks as representatives according to § 9 BAO if they culpably violate their duties.​

This creates a dual role for authorized signatories: on the one hand, they act as particularly “powerful” representatives externally, and on the other hand, they act as personally liable actors when disregarding internal guidelines or public legal obligations.​

4. Authorized Agent: Flexible but Limited Power of Attorney

The power of attorney is an arbitrary authorization under § 54 HGB/UGB, which does not require a special register requirement and is limited to the ordinary business of the commercial enterprise. It can be granted explicitly or implicitly and is, in practice, the standard instrument for equipping middle management or specialized function holders with authority.​

4.1 Types and Scope of Power of Attorney

In practice, the following distinctions are typically made:

  • General authority: Authorizes all ordinary business of the company, but not extraordinary or fundamentally structuring measures.​
  • Special authority for specific types of transactions: Covers all ordinary business of a specific type, such as all purchasing, sales, or personnel matters.​
  • Special power of attorney: Limited to a single, specifically designated transaction or project.​

Unlike the power of attorney, the scope of authority can be very granularly designed, extended, or restricted by the parties, as long as the authority is sufficiently recognizable to third parties. Typically excluded are real estate transactions, extensive borrowings, promissory notes, as well as legal representation, unless they are characteristic of the position’s business profile.​

4.2 Importance in the Internal Relationship and Liability

The power of attorney serves the division of labor organization, without the high level of abstraction of the power of attorney with its publicity effects. The authorized agent has contractual obligations arising from the employment contract and power of attorney, particularly the duty to carefully perform the assigned tasks and comply with instructions.​

In terms of liability, the authorized agent is generally subject to the principles of employee liability; for excusable mistakes, liability is mitigated, while gross negligence and intent can lead to full compensation. Management must ensure through clear job descriptions, power of attorney documentation, and controls that authorized agents know and comply with their limits.​

Overview of Authority: Managing Director, Authorized Signatory & Authorized Agent

Feature Managing Director Authorized Signatory Authorized Agent
Legal Character Statutory Organ (e.g., § 35 GmbHG) Arbitrary representative with power of attorney (§§ 48 ff. HGB) Arbitrary representative with power of attorney (§ 54 HGB)
Publicity Registration as an organ in the commercial register Power of attorney must be registered in the commercial register No registration requirement, possibly internal announcement
Scope of Authority Comprehensive representation of the company, limited by law and corporate purpose All court and out-of-court commercial transactions, no fundamental transactions Only ordinary business of the trade or certain type
Real Estate Transactions Generally possible within the scope of the organizational power Only with special authorization Typically excluded
Register Declarations Permissible (e.g., HR registrations) Generally excluded Generally excluded
Internal Restrictions Through company rules, approval catalogues, etc. Through instructions and employment contract, mostly irrelevant externally Very flexible design through internal instructions
Liability Standard Care of a prudent businessman; organ liability Increased care as an agent; if applicable, personal liability (e.g., taxes) Employee liability with moderation principles

From this, several key points arise for governance practice:

  • The granting of power of attorney creates a high level of external power and should therefore be closely linked to the company’s internal rules and risk strategy (power of attorney matrix, signature guidelines).​
  • Powers of attorney are the preferred instrument for operational executives, as they offer fine-tuning and can be better integrated into the employee structure in terms of liability.​
  • Managing directors remain the “masters of the system” even in the case of extensive delegation and must ensure selection, instruction, and control of their authorized signatories and agents within an appropriate organizational framework.​

6. Compliance Recommendations for Practice

From a compliance perspective, a systematic approach to designing management and authority powers is recommended. This approach should consider the legal boundaries of each role while also reflecting the operational requirements of the company.​

Essential components include:

  • Power of Attorney Matrix and Signature Guidelines: Written specification of who is authorized to sign to what extent (managing director, authorized signatory, authorized agent) including monetary limits, collective commitments, and special competencies.​
  • Transparency and Documentation: Consistent communication of the granting of power of attorney to employees, business partners, and banks, as well as ongoing updates of the commercial register/company book and internal directories.​
  • Delegation and Control Concept: Traceable delegation of tasks by managing directors to authorized signatories and agents, combined with regular review of the arrangements made.​
  • Training and Sensitization: Target group-specific training for organ holders, authorized signatories, and agents on the scope, limits, and liability risks of their authority, including case studies on typical “overspending” or competence exceedances.​

Especially in regulated industries (financial service providers, regulated trades), supervisory requirements for Fit & Proper, functional separation, and the four-eyes principle should also be explicitly included in the design of authority. This way, the formal legal situation regarding managing directors, authorized signatories, and agents is transformed into a consistent governance and compliance system that both upholds the legal framework and secures the company’s operational capability.​

Understanding Authority – Safely Managing Liability Risks

Those who hold or delegate authority should know their legal boundaries and personal liability risks precisely. The appropriate training by S+P supports you in legally implementing governance and compliance requirements.

FAQ: Authority of Managing Directors, Authorized Signatories, and Authorized Agents

References

  1. https://sp-unternehmerforum.de/prokurist-lehrgang/prokura-dach-rechtslage/

2. Legal Texts at buzer.de

Here, among others, § 48 HGB (Issuance of Power of Attorney), § 49 HGB (Scope of Power of Attorney), § 50 HGB (Impossibility to Restrict), § 54 HGB (power of Attorney) can be accessed in full text.buzer