Procuration
Procuration is an important instrument in German commercial law that enables companies to grant certain persons far-reaching powers of representation.
What is procuration and how is it granted?
Procuration is a special form of power of attorney regulated in the German Commercial Code (HGB). It authorizes an authorized signatory to act on behalf of the company and to conclude legal transactions. Granting power of attorney is an important step for companies to expand their capacity to act and to give certain persons far-reaching powers.
Definition of procuration according to HGB
According to Section 48 of the German Commercial Code (HGB), a procuration is a power of attorney that authorizes the procurator to carry out all types of judicial and extrajudicial transactions that the operation of a commercial business entails. An authorized signatory is therefore authorized to represent the company within a very broad framework. This far-reaching power of representation distinguishes the Prokura from other forms of power of attorney, such as the power of attorney to act, which is generally limited to certain transactions or areas.
Requirements for the granting of procuration
The granting of a power of attorney requires that the business owners or the persons authorized to represent them (e.g. managing directors of a GmbH) expressly grant it. Only merchants within the meaning of the German Commercial Code (HGB) can grant a power of attorney. The power of attorney does not have to be granted in writing, although this is recommended for reasons of proof. An authorized signatory does not have to expressly accept the power of attorney; their consent can also be given by conclusive action.
Entry of the power of attorney in the commercial register
An important formality when granting power of attorney is the entry in the commercial register. In accordance with Section 53 of the German Commercial Code (HGB), the granting of procuration must be filed for entry in the commercial register. This entry has a declaratory effect, which means that the power of attorney becomes effective as soon as it is granted, not only when it is entered. The entry mainly serves to inform third parties and creates legal certainty in business transactions. The type of procuration (individual or joint procuration) and any restrictions must also be specified when registering.
What types of procuration are there?
German commercial law recognizes various types of procuration, which differ in their scope and exercise. Choosing the right type of procuration is very important for companies, as it influences the ability to act and control within the company.
Individual power of attorney vs. joint power of attorney
The individual procuration authorizes the holder to act alone and independently for the company. An authorized signatory can carry out all legal transactions covered by the power of attorney without the involvement of others. This offers great flexibility, but also requires a high degree of trust in the authorized signatory. The joint power of attorney, on the other hand, stipulates that several authorized signatories can only act jointly. This increases control and reduces the risk of wrong decisions, but can limit the ability to act. A special form is the non-genuine joint power of attorney, in which an authorized signatory may only act jointly with a managing director or owner.
Branch procuration: Special features and use cases
The branch procuration is also a special form of procuration that is limited to a specific branch or subsidiary of a company. With a branch procuration, you are only authorized to carry out legal transactions for this specific branch. This type of procuration is particularly useful for companies with several locations that prefer decentralized management. The branch procuration must be entered in the commercial register, whereby the branch in question must be precisely designated.
Differences between procuration and power of attorney
While the power of attorney is a very broad authorization, the power of attorney is more limited in scope. Authorized representatives are only authorized to carry out transactions and legal acts that are usually associated with the operation of a commercial business. In contrast to authorized signatories, authorized representatives may not, for example, sell or encumber real estate. In addition, the power of attorney must be entered in the commercial register, whereas this is not required for a power of attorney. The power of attorney therefore offers a more comprehensive power of representation and enjoys a higher reputation in business transactions.
What powers and restrictions do authorized signatories have?
The power of representation of an authorized signatory is very far-reaching, but is nevertheless subject to certain legal and practical restrictions. It is important that both authorized signatories and business partners are aware of the limits of these powers.
Scope of the power of representation of authorized signatories
Prokurist:innen are authorized to carry out all types of judicial and extrajudicial transactions that the operation of a commercial business entails. This includes, among other things, the conclusion of contracts, the hiring and firing of staff, representation in court and the conduct of legal proceedings. In principle, the power of representation extends to all branches of the commercial business and is not limited to certain business areas. Prokurist:innen can even appoint other Prokurist:innen or authorized representatives, unless this has been expressly prohibited.
Legal restrictions on the power of attorney
Despite the extensive powers, there are some legal restrictions on the power of attorney. According to Section 49 (2) HGB, authorized signatories are not entitled to sell or encumber real estate without special authorization. This restriction serves to protect the company from far-reaching disposals of real estate assets. In addition, authorized signatories cannot represent the company in fundamental transactions, such as changing the object of the company or dissolving the company. Such decisions are reserved for the shareholders or the owner.
Internal relationship: Authorized signatories bound by instructions
In the internal relationship with the company, the authorized signatory is bound by instructions. The business owner or the management can issue instructions to authorized signatories and limit their powers internally. However, such internal restrictions have no effect on the power of representation in the external relationship. If authorized signatories violate internal instructions, they may become liable to the company, but the transactions they conclude remain effective in principle. This underlines the importance of a relationship of trust between the company and the authorized representative.
How are authorized signatories represented?
Representation by authorized signatories is a central aspect of their activities and has far-reaching legal consequences for the company. It is important to understand what this representation looks like in practice and what effects it has.
Representation in and out of court
Prokurist:innen are authorized to represent companies both in and out of court. In extrajudicial matters, this means that they can conclude contracts, make declarations and generally perform all legal acts related to the operation of the business. In judicial matters, authorized signatories can represent the company in court, file lawsuits or appeal. This comprehensive power of representation extends to all branches of the commercial business and is not limited to certain business areas.
Procuration in the external relationship: effect vis-à-vis third parties
In the external relationship, i.e. towards third parties, the power of attorney has unlimited effect. This means that all actions of the authorized signatories that are within the scope of their power of representation are binding for the company. Even if authorized signatories disregard internal instructions or exceed their powers, the transactions they conclude remain effective as long as they do not exceed the legal limits of the power of attorney. This far-reaching effect in the external relationship serves to protect legal transactions and legal certainty. Business partners can rely on authorized signatories being able to represent the company in a legally effective manner without having to check internal restrictions.
Signature and signing authority of authorized signatories
When exercising their power of representation, authorized signatories must sign in a certain form. According to § 51 HGB, authorized signatories must sign in such a way that they add their name to the company with an addition indicating the power of attorney. Common additions are “ppa.” (per procura) or “Prokurist”. This form of signature makes it clear to business partners that the signatory is acting as an authorized signatory and not as the owner or managing director. In the case of joint procuration, all authorized signatories must sign jointly, unless a different arrangement has been made.
When and how does the power of attorney expire?
Prokura is not a permanent or irrevocable power of attorney. There are various reasons and ways in which a power of attorney can end.
Reasons for the expiry of the power of attorney
The power of attorney can expire for various reasons. A common reason is revocation by the business owner or the persons authorized to represent the company. The power of attorney also expires automatically if the company is dissolved or business operations are discontinued. The death of a Prokura holder also leads to the expiry of the Prokura. In the case of legal entities, the procuration also ends if they are dissolved. In some cases, an agreement between the company and the Prokurist can also bring about the end of the Prokura, for example if the Prokurist leaves the company.
Revocation of power of attorney by business owner:in
Prokura can be revoked at any time and no justification is required. This is due to the nature of procuration as a special relationship of trust. The revocation must be clear and unambiguous, but can be made informally. It is advisable to document the revocation in writing in order to avoid difficulties in providing evidence. Authorized signatories must be informed of the revocation and it is important that all documents and power of attorney certificates that document the power of attorney to the outside world are taken from them. The revocation takes effect immediately, regardless of the deletion in the commercial register.
Deletion of the power of attorney in the commercial register
Once the power of attorney has expired, it must also be deleted from the commercial register. However, the deletion only has a declaratory effect, i.e. the procuration is already terminated with the revocation or another reason for expiry. The owner of the commercial business or the authorized representatives are responsible for registering the deletion. It is important that the deletion is carried out promptly in order to avoid misunderstandings in business transactions. Until the deletion, a third party acting in good faith can invoke the continued existence of the power of attorney if they were unaware of its expiry.
What special features apply to the power of attorney in a GmbH?
Procuration in a GmbH is subject to a number of special features resulting from the legal form of the limited liability company. These particularities concern both the granting of the power of attorney and the relationship between the authorized signatory, managing director and shareholder.
Granting of power of attorney by GmbH managing directors
In a GmbH, managing directors are generally responsible for granting power of attorney. They can grant procuration unless the articles of association expressly exclude this or require the approval of the shareholders’ meeting. The granting of procuration by GmbH managing directors must be in accordance with the provisions of company law. It should be noted that if there are several managing directors, they must generally all act jointly, unless the articles of association provide otherwise. The granting of power of attorney must also be filed for entry in the commercial register in a GmbH.
Relationship between authorized signatories and shareholders
In a GmbH, there is a clear separation between the management and the shareholders. Prokurist:innen are part of the management level and report directly to the managing directors, not the shareholders. Shareholders have no direct influence on the activities of authorized signatories, but can influence the granting or revocation of the power of attorney via the shareholders’ meeting. (Prokurist:innen are not authorized to make decisions that fall within the competence of the shareholders’ meeting, such as amendments to the articles of association or the dissolution of the company).
Procuration for basic transactions of the GmbH
The powers of authorized signatories are severely restricted for basic transactions of the GmbH, i.e. transactions that affect the basic structure of the company. Such transactions are generally the exclusive responsibility of the shareholders’ meeting or at least require their approval. These include, for example, amendments to the articles of association, increasing or reducing the share capital, the sale of significant parts of the company or the dissolution of the company. Authorized signatories cannot effectively represent the GmbH in such fundamental transactions. This restriction serves to protect the shareholders and the integrity of the company structure. It is therefore important that authorized signatories in a GmbH know exactly the limits of their power of representation and consult with the managing directors or shareholders in case of doubt.
