Commercial representation – a power of attorney granted by an entrepreneur part 3

A natural person with full legal capacity may be a commercial representative. This means that the commercial representative must be of legal age and cannot be even partially incapacitated.

An employee of the entrepreneur may also become a commercial representative. The liability of the employee who is a commercial representative is not limited by the provisions of the Labour Code. It is believed that the employment relationship and the commercial representation relationship are independent of each other. As a result, if an employee who is a commercial representative causes damage to the principal, he is liable for this without limitation. An employee who agrees to become a commercial representative waives the limitation of his liability provided for in the Labour Code with regard to the activities performed as a commercial representative.

According to the justification of the resolution of the Supreme Court of 2006 and 2014, the functions of a member of the company’s management board and its commercial representative may also be combined. It is also admissible for the functions of a commercial representative to be assumed by shareholders of a limited liability company or stockholders, as long as they are not members of the company’s governing bodies (e.g. management board, supervisory board or audit committee). However, the function of a commercial representative cannot be combined with the function of a member of the supervisory board in a company or a member of the audit committee in a limited liability company.

In one of its judgments, the Supreme Court decided that a limited liability company that is a general partner in a limited partnership may make declarations of intent on behalf of the limited partnership through a commercial representative or a proxy appointed by it.

The lawmakers left the entrepreneur the freedom to determine how many commercial representatives he will appoint and how he will form the relations between them.

The entrepreneur can appoint several commercial representatives, in which case some will be able to act on behalf of the entrepreneur independently (independent commercial representation), and some only jointly with another commercial representative (joint commercial representation).

The entrepreneur’s freedom to define the relationship between commercial representatives does not apply to the activities that commercial representatives can take up. This seems absolutely justified, given the nature of the representation. If the entrepreneur’s freedom went this far, it would reduce the certainty of the commercial representation in trading. For example, the other party to the contract would have to ascertain what the scope of the commercial representative’s authorization is every time. As commercial representations cannot be limited with effect on third parties, it should be accepted that this rule limits the freedom referred to here.

The exception to the prohibition on limiting commercial representation with effect on third parties is the ability to establish joint commercial representation. The lawmakers guaranteed certainty of trading when allowing such commercial representation through the requirement that the establishment of joint commercial representation unambiguously arose from the document of the authorization. If the document does not mention the type of commercial representation, this means that independent and not joint commercial representation has been established.

Additionally, Article 39, item 3 of the Act on the National Court Register requires the identification of the type of representation (namely whether it is joint or independent commercial representation). If it does not arise from the register or the document of the authorization that it is joint commercial representation, such commercial representation should be treated as being independent. This means that such a commercial representative will be able to conclude a contract on his own and this contract will be binding on the entrepreneur on behalf of whom this commercial representative is acting, while the other party will not be able to rely on the incorrect representation of the party.

Finally, the ability to establish joint commercial representation has been limited to activities of representation, namely activities that are ‘outgoing’ from the entrepreneur (e.g. to conclude contracts on his behalf, make declarations of rescission of contracts, payment demands, etc.). In the case of such declarations, the commercial representative must act together with another commercial representative or a member of the management board. The entrepreneur’s declaration of intent is only submitted if all commercial representatives who need to act together submit the said declaration (e.g. sign a contract). It is only the statement of the last of these that will enable the acceptance that the entrepreneur has made the statement in question.

The situation is different in the case of declarations of intent addressed to an entrepreneur who established joint commercial representation. The lawmakers made the reservation that, even in the case of joint representation, declarations addressed to the entrepreneur (for instance, the termination of a contract concluded with him) may be made with respect to one of the joint commercial representatives. The same principle applies to serving correspondence from the entrepreneur.

A distinction needs to be made between mixed representation and joint irregular commercial representation.

A mixed representation (very often encountered in trading) is a situation in which a member of the management board or partner entitled to represent a commercial partnership may conduct legal transactions only jointly with another member of the management board or a commercial representative.

Article 30 of the Code of Commercial Companies explicitly indicates that a partnership agreement may specify that a partner is entitled to represent the company only together with another partner or a commercial representative. The situation is similar in a limited liability company, where in the case of a multiple-person management board, the method of representing the company is specified in the articles of association. If the articles do not contain any provisions on this, making declarations on behalf of the company requires the joint action of two members of the management board or one member of the management board together with a commercial representative (the same regulations apply to a joint-stock company). Therefore, the provisions of the law explicitly allow for mixed representation.

In its ruling of 5 July 2013, the Supreme Court held that every commercial representative has the right to act jointly with a member of the management board (or a partner in a commercial partnership) independently, regardless of whether he has been granted independent or joint commercial representation.

The fact that a member of the management board can act effectively on behalf of a company only together with another member of the management board or a commercial representative does not deprive the people who have been granted joint commercial representation the ability to act jointly on behalf of a company without the need to act with a member of the management board. Mixed representation is a form of restriction for the management board, not the commercial representative. The commercial representative’s action together with a member of the management board does not change his status or, all the more so the extent of his authorization. If commercial representation is established for two people in a company by explicitly establishing joint commercial representation, there will be no grounds to conclude that, in addition to the declaration of intent made by each of them (e.g. the signature of a contract), a declaration of intent of a member of the company’s management board will also be necessary for a legal transaction (e.g. the conclusion of a contract), which they perform on behalf of the company, to be effective. Such a requirement would constitute a limitation of the rights of joint commercial representatives arising from the provisions on commercial representation, which is prohibited in the light of the provisions of Article 205 para. 3 of the Code of Commercial Companies. This provision states that the requirement for one member of the management board to act jointly with a commercial representative does not rule out or limit the rights of the commercial representatives arising from the regulations on commercial representation (see the decision of the Supreme Court of 25 February 2016).

As can be seen, the rules of representation can be limited in the manner described above. The situation is similar in the case of a commercial representative. An entrepreneur may regulate the commercial representation so that the commercial representative can only act jointly with a member of the management board or a partner who is authorized to represent a commercial company or partnership.

Commercial representation vs power of attorney

A commercial representation is a special type of power of attorney not only because it can be granted only by an entrepreneur who needs to be registered in the register (namely not everyone), but also because the scope of people who can become commercial representatives has been limited. Only a natural person with full legal capacity may become a commercial representative.

In contrast with the power of attorney and the proxy acting on its basis, the scope of the commercial representative’s rights is specified by law, while the scope of authorization of the proxy arises from the content of the power of attorney.

In contrast with a general power of attorney, whether an act performed by the commercial representative is an activity of ordinary management or exceeds it is irrelevant for commercial representation. The commercial representative is authorized to perform both categories of activities.

Commercial representation also differs from a power of attorney in form. The commercial representation must be granted in writing, otherwise null and void, and must be entered in the register. Any written form is admissible, from an ordinary written form up to and including a notarial deed. Commercial representation may be granted in electronic form, because this form is treated as equivalent to the written form. This means that it is sufficient to make a declaration on the award of commercial representation in writing and to furnish it with a secure electronic signature verified by a valid qualified certificate.

A commercial representative cannot be appointed orally. Such an appointment of a commercial representative is invalid. Additionally, the content of the authorization must be unambiguous and must indicate that it is about awarding commercial representation and not just another form of power of attorney.

A power of attorney may be granted in any form, except for a general power of attorney, which must be granted in writing, otherwise null and void. The exception is the situation when a special form is required for the validity of a legal transaction. In such a case, a power of attorney to perform this activity should be granted in the same form. The best example is a power of attorney to sell real property. The contract for the sale of property must be concluded in the form of a notarial deed. Consequently, a power of attorney to perform this activity should be granted in the same form. This rule does not apply in the case of a commercial representation. A commercial representation may be granted in ordinary written form, if its scope includes the right to purchase real property, then a commercial representative may effectively buy real property under such an authorization.

In contrast with a proxy, a commercial representative cannot grant substitute commercial representations, namely delegate his powers to another person (in other words, he may not transfer the commercial representation). The commercial representative may, however, appoint a proxy for a particular activity or a certain type of activity.

The commercial representation may be revoked at any time and an irrevocable commercial representation cannot be granted, while in the case of a power of attorney, the principal (the person granting the power of attorney) may waive the right to revoke it.

In contrast with the power of attorney, the commercial representation expires during the liquidation of the enterprise and the declaration of its bankruptcy.

Commercial representative and the company’s management board

First of all, the commercial representative is not a governing body of the enterprise. Therefore, the commercial representative’s will (e.g. the conclusion of a contract) is his own declaration, but made on behalf of the entrepreneur. In the case of the entrepreneur’s governing body (e.g. the management board), a declaration of intent of the governing body (e.g. the conclusion of a contract) is considered to be a declaration of the entrepreneur itself.

As the commercial representative is not a governing body of the company, he cannot be examined in court as a party, but purely as a witness. Only members of the management board may be examined as parties.

The entrepreneur’s governing body is a part of the entrepreneur’s organizational structure and is a necessary element. There is no such relationship in the case of a commercial representative.

There are also differences regarding the rights of the entrepreneur’s governing body and those of the commercial representative. The governing body operates within the scope of rights arising from legal acts governing the legal entity’s structure. However, the commercial representative acts on the basis of the commercial representation granted to him by the entrepreneur, within the framework of the rights specified in the Act.

Unlike a member of the management board, the commercial representative is not required to file for bankruptcy. Therefore, he does not bear the risk of liability under Article 373 of the Bankruptcy Law. According to this provision, a member of the management board who did not file for bankruptcy within the deadline through his own fault faces:

• the deprival of the right to conduct business activities to his own account or within a civil partnership for a period of one to ten years and
• a prohibition to perform the function of a succession administrator, a member of a supervisory board, a member of an audit committee, a representative or proxy of a sole proprietor doing business in the area of this activity, a commercial company, a state-owned enterprise, a cooperative, foundation or an association.

The commercial representation may be revoked at any time…

In the case of partnerships, commercial representations may be revoked by any partner who has the right to manage the partnership’s affairs. Every member of the management board of a limited liability company or a joint-stock company has this right.

The commercial representation may be revoked by the entrepreneur in any form and is a unilateral legal act (i.e. the commercial representative’s consent is not required for it to be revoked). The entrepreneur may specify the date of expiry of the commercial representation when revoking it. However, if he does not specify a date, it is assumed that the commercial representation is revoked with immediate effect at the time when the declaration that the commercial representation is being revoked is served to the commercial representative in such a way that he could read it.

The commercial representation also expires as a result of:

• the deletion of the entrepreneur from the register or records; the entrepreneur’s bankruptcy, the opening of liquidation or the transformation of the enterprise;
• the death of the commercial representative (in contrast with the power of attorney, it cannot be specified that the authorization is transferred to the commercial representative’s heirs);
• the appointment of a trustee;
• the disposal, handover of the enterprise for lease or use.

It is worth noting that the entrepreneur’s loss of legal capacity does not result in the expiry of the commercial representation.

The entrepreneur is obliged to submit the notice of termination of the commercial representation to the register/records. Compliance with this obligation is very important. It should be remembered that, if a former commercial representative causes damage and no motion for his removal has been submitted, the entrepreneur will be held liable. In accordance with the regulations, the entrepreneur is liable if he does not submit a mandatory motion for making an entry (deletion), unless the damage arose as a result of force majeure or exclusively through the fault of the injured party or a third party for which the entrepreneur is not responsible. The entrepreneur’s liability defined in this way is in compliance with the principle of trust in the register and ensures security of trading.

Furthermore, according to Article 14 of the Act on the National Court Register, in the event of failure to comply with the obligation to report the expiry of the commercial representation to the register/records, the entrepreneur may not rely on the data that has not been removed from the register with respect to third parties acting in good faith. In practice, this means that a dismissed commercial representative who has not been removed from the register can successfully conclude a contract on behalf of the entrepreneur.

In conclusion: a commercial representation is a very effective way of delegating in-court and out-of-court activities related to running a business to a trusted person who can stand in for the entrepreneur in many activities related to the day-to-day management of the business, although whether the person to whom the commercial representation is provided is the right person to perform the entrusted function should always be checked.

This completes the information cycle on the commercial representation. I hope the information provided was useful and has explained the institution of the commercial representation to you.

If you have arrived at this point, you have probably read the whole article. If I am right and you liked the article, I would be grateful if you could like my page on Facebook https://www.facebook.com/adlkancelaria/), where I am constantly adding other similar articles. Thank you very much in advance.