Representing a company vis-à-vis third parties is a central part of day-to-day business. Particularly in companies with employees, it is often not possible or useful for owners to handle all legal transactions such as contract signings, terminations, or communicating with authorities themselves. Therefore, it is necessary for certain persons to be authorised to act on behalf of the company.
Who is authorised to represent a company?
1. Legal representation by corporate bodies
In principle, a company is represented by its corporate bodies - specifically, the board of directors in a joint-stock company (Ltd) and the management in a limited liability company (LLC). These statutory representatives are legally empowered to represent the company externally and conclude legal transactions:
- In the case of a joint-stock company (Ltd), each member of the board of directors is generally authorised to represent the company individually, unless the articles of association specify that two members must sign jointly. To ensure continuous representation, at least one board member with sole signing authority must reside in Switzerland.
- In a limited liability company (LLC), each managing director is legally authorized to represent the company (a principle known as self-organization). However, shareholders can override this default rule in the articles of association by requiring that managing directors be elected by the shareholders' meeting. In such cases, only the elected managing directors are authorized to represent the LLC.
Therefore, it is particularly important to review the articles of association or eventual organisational regulations (see below). Only the current commercial register extract or the organisational regulations provide a complete overview of which legally designated representatives are actually authorized to represent the company.
2. Legal representation - more flexibility through powers of attorney
In addition to legal representation by executive bodies, there is often a need to grant representation authority to other employees. This need can be addressed through powers of attorney, which allow for the flexible assignment of representation rights to specific individuals. The following types of power of attorney are distinguished:
- Special power of attorney: Granted for specific transactions only.
- Generic power of attorney: Applies to a specific type of transaction.
- General power of attorney: Covers all company matters.
It is important to know that powers of attorney are independent of the underlying legal relationships, such as employment contracts. This means that powers of attorney remain valid until they are actively revoked. When an employee leaves the company, it is essential to revoke any existing powers of attorney to prevent their continued use and potential misuse
Authorisations can then also be entered in the commercial register. Many people are familiar with the terms " Procuration " and "Commercial power of attorney" will probably be familiar to many:
Procuration:
- A valid procuration requires entry in the commercial register.
- An authorized signatory can independently conduct all business transactions related to the company’s purpose, except for selling or encumbering real estate.
- The cancellation of a procuration must be registered with the commercial register, incurring administrative costs and registry fees.
Authorisation to act:
- A power of attorney is valid even without registration in the commercial register; however, registration is optional.
- The revocation of an unregistered power of attorney can be carried out without administrative effort or costs, but it is advisable to document it in writing.
If a representative is listed in the commercial register, their signing authority is also recorded, specifying whether they have sole or joint signing rights. Registering a representative provides legal certainty in business transactions, as third parties cannot claim ignorance of their authority.
3. Special Case: Prima facie authorisation – protection of legitimate expectations in business transactions
In many companies, employees who do not have a formal power of attorney nevertheless act on behalf of the company. This action is often legally covered by the principle of prima facie authorisation. If an employee repeatedly concludes contracts with a company via the business email address or business telephone number and the company tolerates this action (e.g. by accepting the goods and making payments), third parties may reasonably assume that this employee is authorized to act. In this case, the third party is not required to check each time whether the signatory or customer is authorised to sign or order.
As a result, a contract with a supplier, for example, may be just as binding as if it had been signed by a duly authorized board member. While this simplifies business operations, it also carries risks, as companies may become unintentionally bound by contracts.
How Can These Risks Be Minimized?
1. Internal organisation to minimise risk
To ensure that the company acts in a legally compliant manner, a clear internal organisation is recommended. This includes:
- Organisational regulations: These define who has what powers within the company, including the representation and signing authorities. These regulations establish clear decision-making channels and responsibilities, which is particularly important in larger organizations for legal security and efficiency. You can find more information on organisational regulations in Alain Friedrich's blog post.
- Function chart: A visual representation of responsibilities within the company that shows who is responsible for what and who is authorised to represent the company externally. A well-structured function chart not only visualizes internal responsibilities but also representation rights and decision-making authority. It serves as a point of reference for employees and is often easier to comprehend than lengthy regulations. Ultimately, the function chart helps prevent internal misunderstandings regarding signing rights and ensures clarity in corporate governance.
- Signature regulation: Determines who is authorised to sign which documents on behalf of the company.
- An authorised representative has limited signing authority, which can be restricted to specific actions or business areas. Depending on the company’s internal structure, a power of attorney can be granted informally, and registration in the commercial register is optional.
- An authorised signatory has a very wide-ranging power of representation, which in principle covers all legal acts that the purpose of a company entails. The granting of a power of attorney must be entered in the commercial register, although the entry of authorised representatives in the commercial register is voluntary.
2. Delegation of signatory authorisations
A frequent request in companies is to delegate the granting of signing authorisations to the management. According to Art. 716a CO (Swiss Code of Obligations), the appointment and dismissal of persons with management and representation duties is a non-transferable task of the Board of Directors. However, the granting of signatory powers to persons not directly subordinate to the Board of Directors may be delegated to the Executive Board if this is provided for in the Articles of Association and the organisational regulations.
3. Internal company measures
Consistent implementation of internal control measures is essential to prevent unauthorised employees from concluding transactions with third parties. One possible means is to make the accounting department aware of the need to check invoices before they are paid to ensure that the underlying contracts have been signed by authorised persons.
However, such internal rules are only effective if they are clearly communicated and consistently enforced. In practice, the focus is therefore on clear communication of the powers of representation and efficient monitoring in order to prevent undesirable actions in good time.
Takeaways as an entrepreneur
- The representation of a company must be well organised and clearly communicated both internally and externally.
- Useful tools for this are the organisational regulations, function chart and the signature regulations in the commercial register.
- Authorisations granted for legal transactions must be actively revoked after termination of the employment relationship.
- If an employee has entered into an unwanted contractual relationship with a third party in the name of the company without instructions, the company should react immediately and clarify the situation with the third party. Otherwise the construct of prima facie authorisation applies.
- The internal communication of these rules and their enforcement is central and should be ensured within the company.
