Signing authority

What it means

The manner of acting on behalf of a company is the rule that determines who signs for the company and how. For an s.r.o. it is set in the articles of association and entered in the Commercial Register. It may state, for example, that each director acts alone, or that two directors must act jointly.

If the articles say nothing, the law presumes that each director acts alone. Companies with several shareholders often agree on joint action, especially for larger commitments, so that no single director can bind the company alone. The rule applies to the whole statutory body.

Besides the directors, others can act for the company: a registered attorney under a procuration, which is also entered in the register, employees to the extent usual for their position, or anyone holding a power of attorney. These authorities, however, derive from the directors and cannot exceed theirs.

How it works in practice

When setting up a company with several shareholders, we discuss the manner of acting they want. A combination often works well: routine matters signed by any director alone, but contracts above a certain value or loans requiring two signatures. Such a limit applies internally only; towards third parties the register entry decides.

For contracts with new partners, we recommend always checking the Commercial Register extract and verifying that whoever signs for the other side acts in line with the registered manner. If two must sign, one signature is not enough.

Banks, authorities and notaries verify the manner of acting and, if unclear, ask for further documents such as a specimen signature or a general meeting resolution. Changing the manner of acting requires amending the articles and filing the change for registration.

What to watch out for

A contract signed contrary to the registered manner, for example by one director where two are required, may not bind the company unless it is ratified afterwards. That creates uncertainty for both parties and can lead to disputes.

Joint action also has a practical downside: if one director falls ill or is away, the company cannot sign important documents. It is wise to plan for cover in advance, for example through a procuration or a power of attorney for specific acts.