The attribution of the power of representation to one or various members of the board of directors through the bylaws

Written on 29 Mar 2017

Article 233 of the Capital Companies Act deals with the attribution of a power of representation, which does not pose particular problems of interpretation when it concerns a sole, joint or joint and several directors. However, when we are dealing with a board of directors, this provision arouses curiosity in envisioning that “the bylaws may attribute the power of representation to one or various members of the board either individually or jointly”.

When the management of a company rests on a board of directors, the board may confer powers upon any person, whether or not they are a member, through a power of attorney or the delegation of powers. In the latter case (the delegation of powers), these must be conferred to a board member who, by virtue of said act, will inherit the title of “managing director” regardless of the extent of the delegation. These powers will be limited to those powers that cannot be delegated by law or bylaws. In all of these scenarios, it is the board itself that confers the powers.

However, article 233 of the Capital Companies Act (“CCA”), as well as articles 123.2.d) and 185.3.d) of the Regulations of the Commercial Registry (“RCM”) contemplate the possibility that the general meeting, through the bylaws, attributes the power of representation to one or various members of the board, either individually or jointly (the “bylaws’ representatives”). Furthermore, article 234 CCA specifies the scope of the power of representation, which “shall extend to all acts included in the company purpose defined in the bylaws“. If this option appears in the bylaws, it is customary for it to be used for certain positions of the board of directors, mainly the President and/or Secretary, although it may be conferred upon all members of the board at any given time.

This figure is very unusual, though it may nevertheless have certain consequences, including the following:

Normally, company management keeps track of attorneys and managing directors. However this attribution of power through the bylaws may not appear in the Commercial Registry and may even be overlooked in the due diligence process in a potential transaction. Therefore, there could be a situation of a person in a company having broad powers of representation without any control thereof.

On the other hand, if a company is aware of their existence and wants to maintain it, the problem lies in its form of exercise, since in order to prove the sufficiency of their powers, the representative should:

  • Firstly, confirm that the bylaws confer this power upon them and that the corresponding articles of the bylaws are in force and have not been modified.
  • Secondly, confirm that he or she is a member of the board of directors or, as the case may be, President or Secretary (in the case of a Secretary, the power of representation cannot be conferred to a non-director Secretary). In short, that they hold the position in favour of which the bylaws attribute such powers.

A priori, all of the above could be done by obtaining a certificate from the Commercial Registry, without prejudice to other formulas that a third party may require.

  • Thirdly, and where the greatest complexity lies, an accreditation that said act is supported by the board of directors (and perhaps even supported by the general meeting in the case of any of the situations outlined in article 160.f CCA) may be required.

Unfortunately, we do not have much doctrine or case law on this point. The majority of the doctrine agrees that these representatives are internally conditioned by the instructions of the board of directors, although externally their actions are perfectly binding even if there is no prior agreement. That is to say, this scenario of representation is not a mere power to implement the agreements adopted by the board but rather a real attribution of the power of representation (see “Comentario a la Ley de Sociedades de Capital, Tomo 1” by Ángel Rojo and Emilio Beltrán).

However, in practice, when seeking to exercise such power before third parties, it is likely that the bylaws’ representative will be required to have the corresponding resolution of the board supporting his/her representation. In particular, this usually applies when dealing with public documents granted before Public Notaries as they may require such a resolution as a safeguard of the adequacy of the powers (and of any possible challenges) and, moreover, of their eventual responsibility for admitting a representation that is used infrequently and the scope of which is not completely clear. However, aside from this reason which requires such a resolution it is, to say the least, surprising that a proxy or a managing director does not require the resolution of the board yet a bylaws´ representative appointed by way of the bylaws, or more precisely by the general meeting itself (with whom the sovereignty of the company ultimately resides), does require it. Furthermore, the scope of the representation, in accordance with the provisions of article 234 CCA, will be extended to all acts included in the company purpose detailed in the bylaws and, requiring the board resolution, resulting in this figure losing its flexibility.