Commercial representation – a power of attorney granted by an entrepreneur part 2

The Polish lawmakers have accepted the principle of prohibiting the restriction of commercial representation with respect to third parties. This principle is of a general nature, while the applicable laws provide for exceptions from it. One of the statutory restrictions on commercial representation is the restriction of the commercial representative’s rights regarding:

• the sale of the business;
• the performance of legal transactions on the basis of which the enterprise is handed over for temporary use;
• the disposal and encumbrance of real property.

The restriction in question involves the requirement of the commercial representative to have an additional power of attorney to take up these activities.

In other words, the entrepreneur needs to grant the commercial representative a separate power of attorney, for instance, to sell or lease the business, sell real property or establish a mortgage on it. A commercial representative who does not have such a power of attorney is not authorized to act. Therefore, it is good practice to secure your interests by requesting the trading partner’s commercial representative to present a power of attorney for performing these activities.

The statutory limitation of commercial representation for activities related to running a business leads to the conclusion that a commercial representative cannot perform activities that apply to the entrepreneur’s internal relations, e.g. he is not entitled to call meetings of the company’s governing bodies. He also cannot conduct activities not related to running the business. However, it is accepted that even a very limited relationship between the activities and running the business authorises the commercial representative to act on behalf of the principal.

A commercial representative cannot represent the company in contracts and matters between members of the management board and the company because, in these categories of matters, the supervisory board or the proxy appointed by the general meeting has the right to represent the company. However, it is possible for the company’s general meeting to grant a power of attorney to a commercial representative to take such actions. In such a situation, the commercial representative will act as a proxy (and not a commercial representative) and, consequently, will be able to represent the company in a dispute with a member of the management board or when signing a contract with him.

In any other respects, any additional restrictions on the rights of the commercial representative with respect to third parties will only have an internal effect, i.e. in the relationship between the enterprise and the commercial representative. This restriction will not affect an activity performed by the commercial representative in breach of the said restriction. The ineffectiveness of such a restriction will be applicable, even if a third party was aware of the internal arrangements between the principal and the commercial representative. Even in such a situation, neither a third party nor the entrepreneur will be able to challenge the act performed by the commercial representative.

How should commercial representation be established?

According to the provisions of the Code of Commercial Companies, the establishment of commercial representation by a registered partnership requires the consent of all partners authorized to handle the partnership’s affairs. Since the establishment of commercial representation is an act of representation of a partnership to which every partner is entitled, the restriction referred to in the foregoing sentence is only of relevance in the partnership’s internal relations (i.e. between its partners). A commercial representation established by a partner without the consent of the other partners will be effective. However, the establishment of commercial representation by a partner without the consent of the other partners may result in his liability for damage caused in this way to others.

In a limited liability company and a joint-stock company, in accordance with the provisions of the Code of Commercial Companies, the approval of all members of the management board is required to establish commercial representation. Here too, this requirement only applies to internal relations within the company. If a commercial representative is appointed in accordance with the principles of representation of the company (e.g. by two members of the management board), despite the lack of consent of the other members of the management board, the commercial representation is considered to have been established effectively. In other words, third parties will be able to conduct a valid legal transaction with the company through a commercial representative appointed in this way (e.g. they will be able to conclude a valid contract).

It is inadmissible for any partnership or company to establish commercial representations during their liquidation.

No statutory regulation of the content of the document of the commercial representation…

The regulations do not govern the content of the document establishing the commercial representation to the extent that there is no requirement for the document to contain the term “commercial representation” or its equivalent. For this reason, it is in the entrepreneur’s interest that the document establishing the commercial representation is drawn up clearly and without doubt that his intention was to establish the commercial representation and not a general power of attorney.

Data regarding commercial representatives and the type of commercial representation is contained in section 2 of the register of entrepreneurs. It is the entrepreneur and not the commercial representative who is obliged to report the commercial representation to the Register of Entrepreneurs or the Central Register and Information on Business Activity.

The Supreme Court took the view that commercial representation is valid despite not being reported to the register or records. However, an entry into the register or records is important from the point of view of legal certainty and security. Firstly, it is related to the presumption of validity of the establishment of the commercial representation. Secondly, the commercial representative obtains the ability to effectively identify himself with an extract or excerpt from the register/records. This applies to both the commercial representative’s involvement in business transactions and in court proceedings. The extract from the register/records replaces the power of attorney required of a proxy. Therefore, an entrepreneur who cares about his interests in a situation where the contractor is represented by a commercial representative should always ascertain that the given person appears in the register/records as a commercial representative.

In the last part of this cycle I shall describe who can be a commercial representative, whether a commercial representative always acts alone (types of commercial representation), what the difference is between a commercial representation and a general power of attorney, a commercial representative and the management board, and how commercial representation can be revoked. Please continue reading.