A reader asks: Do senior managers of a company have to be board members? Are power of attorney agreements enough? What does it change?
The appointment of the company's management is one of the most responsible and important stages in the operation of every company, because the company's manager ensures successful management, as well as represents the company in the public environment, promoting the recognition of its brand at both the national and international level.
Let's consider two options:
- the head of the company is a member of the board;
- the head of the company is an employee hired on the basis of an employment contract (e.g. CEO (chief executive officer)).
The head of the company is a member of the board
The procedure for the appointment of a board member, as well as his duties and responsibilities, are defined and regulated in regulatory legal acts, mainly in the Commercial Law (KL). The board member is appointed by the decision of the meeting of members. According to Article 169, Part 1 of the Labor Code, a board member must fulfill his duties as a good and careful owner. A member of the board is responsible for the company's property and its management, the company's commercial activities and accounting in accordance with the law, as well as for the company's financial resources. He must handle the company's property in accordance with the law, the statutes, and the adopted decisions.
A member of the board has the right to remuneration that corresponds to his duties and the company's financial condition. The amount of compensation is determined by the decision of the council, but if the company does not have a council, by the decision of the members (Article 221, Paragraph 8 of the Civil Code). Accordingly, it can be concluded that a member of the board can fulfill his duties and receive compensation for them without establishing a civil contract with the company.
The main advantage in solving issues of company representation, being a member of the board, is the public availability of information, and everyone can see who is a member of the board and what are his rights of representation in the company with third parties. This is especially important when the board consists of several board members and each has its own competence and responsibility.
Although the relationship between the company and the board member(s) is essentially regulated in the Civil Code and, in certain aspects, also in the Civil Law (CL), in order to regulate and specify the legally established relationship between the company and the board member, one of the ways to do this is to enter into a contract with the board member (for board members) authorization agreement, specifying specific duties and rights of a board member, as well as aspects of remuneration (or no remuneration) and responsibility.
The requirements and terms of the authorization agreement are mentioned in CL Chapter 18, Subchapter 1 (Sections 2289-2317). Pursuant to Article 2289 of the CL, with the power of attorney agreement, one party (trustee, task taker) undertakes to perform a task known to the other (power giver, principal, task giver), while the power giver undertakes to recognize the actions of the power of attorney as binding.
In the event that the company has several board members, the authorization agreement must be concluded with each board member separately. When determining the remuneration for the board member(s), it should be taken into account that it may be lower than the minimum wage in the country. This is a significant difference from the labor legal relations that can be established with a member of the board (board members), accordingly in this case it must be guided by the norms of the Labor Law and the member of the board has all the benefits arising from the law.
The head of the company is not a member of the board
The company's top-level manager may not be a member of the board, in which case an employment contract must be concluded with such a manager. Unlike a board member, whose right to represent the company can be verified in public registers, a manager who does not have the status of a board member can be issued a commercial power of attorney or a notarized power of attorney to exercise the right of representation on behalf of the company. However, information about such authorization is not publicly available, so it must be presented on request or attached when signing documents.
The second option is when such a manager is issued a power of attorney, which gives the right to act on behalf of the company, and this right can be verified in the public database. This facilitates the process of making sure that the person in question is qualified to represent the company's interests. A power of attorney can be issued with certain rights to represent the company, for example, to represent the company separately; with or without the right to pledge or encumber real estate with rights of rem. The power of attorney is visible in public data, so there is no need to add a power of attorney to represent the company in transactions.
A power of attorney agreement can also be concluded for the management of the company, who is not a member of the board, to regulate legal relations. Here the differences between a power of attorney and a power of attorney agreement should be pointed out: the power of attorney only gives the right to conduct cases and act on behalf of the company, but does not impose it as an obligation, in such a case a power of attorney agreement should be concluded, to which the requirements of CL Chapter 18, Subchapter 1 are applicable.
It is important to point out that if an authorization agreement is concluded, many circumstances change for the company manager, for example, with the authorization agreement, the level of responsibility also changes and a different legal basis for the actions of the company manager. In the case of a power of attorney agreement, in accordance with Article CL 2295, the manager of the company as an authorized representative must fulfill his duties in an orderly and responsible manner, because he is also responsible for every negligence he has committed while acting on behalf of the company.
Which option is better?
Taking into account the above, in order to evaluate what kind of legal relationship to establish with the head of the company, it is initially necessary to clearly define what is expected of him, that is, what will be the duties and responsibilities. Normative acts do not necessarily regulate the requirement for the company manager to be a member of the board, because the company manager, by definition, is not only a member of the board. However, it should be noted that the duties and extent of responsibility of the members of the company's board do not change if another person is appointed as the head of the company. Therefore, the appointment of the company manager as a member of the board is not mandatory and everything depends on the company's internal procedures and what is expected from the company's top managers in terms of position and job duties.