Proxy Directorship, Procuration (Prokura)
What is this proxy all about? Another way to divert the workload via a detour?
Well, not really. It is all about having the possibility to put the management's workload and some responsibility on another person's shoulders.
What may such proxy director do?
The proxy may perform any business inside and outside of court for the everyday business of your company's business.
This sounds exactly like what a normal representative may do on behalf of the company. So what is all this jazz about? What's the difference?
The difference between a proxy director and a representative lies in the legal quality and scope of the representation. A representative is only allowed to perform what the specific business of the principal brings with it. On the other hand, the proxy director may obligate the company outside of its usual business. Therefore, the proxy is one legal representative of your company.
How do I get a proxy director into my company?
This is a double folded process: 1) express appointment – orally but best in writing and 2) entry into Commercial Registry by the company's director.
When is the candidate legally appointed as a proxy director?
Once the principal tells the candidate or gives him a letter that she is now working as a Prokurist. The entry in the Commercial Registry is only declaratory. However this may be, the director will still have to visit a notary to apply to have this appointment registered with the Registry. If you need a German as a proxy for banking purposes, the bank will expect that the proxy is registered.
What is the scope of his representation for the company?
The law mandatorily determines the scope of representation. The proxy director acts with full legal binding for and for the company's account. Therefore, the company is liable for anything and all to which the proxy director commits.
Goody goody gumdrops! I do not want my proxy to do all my work. I only want him to close deals up to € 1000. How do I achieve that?
Not at all! Okay, almost not all. Since the proxy director belongs to the legal representatives, his power of attorney may not be limited to the public. There is no way to restrict his external representation officially. Therefore, third persons are entitled by law to believe that the proxy may perform as he does. However, this is not the end of the story. Keep on reading!
Now, this twit of a proxy director went out and acted outside of his competency and signed a contract. Argh.
Internally, it remains binding that your proxy Peter may only engage in business deals up to € 1000. If Peter signs a contract over € 2000, this contract is binding for your company. The defense “The proxy was only entitled to do business up to € 1000!” will not persuade any German judge! You have to pay € 2000 – as a first step. However, you are entitled to damages of this "surplus" amount from the proxy director. These damages can be either the full amount (e.g., for something your company cannot at all use) or partially (e.g., you could have obtained the product/service for less. So much for the concept; the rest has to be discussed for the individual case.
Though it might be a bit late, what exactly is the proxy director entitled to do by law?
To wrap it all up: the company's second set of hands to do something. His duties are:
- to lead the correspondence,
- lead cases in court,
- oblige the company,
- granting simple powers of attorney, i.e., not installing another proxy,
- purchase, rent, lease real estate – but only with special permission,
- hire and generally fire employees.
Wow, that is really a lot. Are there certain tasks that he may not perform?
Sure! He might not do such activities that are those of the director or shareholder. This is especially:
- business aiming at winding up the company,
- signing balance sheets,
- grant proxy directorships,
- make applications towards the Commercial Registry,
- apply for bankruptcy,
- filing tax returns,
Having learned that procuration is strict and binding, what about misuse? Seriously, do I have no protection whatsoever against wrong calls?
The law protects against this in the following most typical cases and more:
- Your proxy director and one or more persons secretly agree to act to harm you and/or your business. This interaction is null and void for violation of good morals.
- Your proxy acts outside of his internal competence, and the business partner knows this.
- A procuration is not or not yet or no longer registered in the Commercial Registry.
When does a proxy end? I am considering firing my director.
A proxy directorship ends:
- with the change of shareholders,
- the bankruptcy of the company,
- cancellation of the proxy's employment contract,
- end of the business,
- procurator's legal incapacity,
- sale of the company.
Gosh, my principal died. What happens to my power of attorney?
Nothing. You remain as a proxy until, for other reasons, your power of attorney ends. The principal's death does not revoke the validity of a power of attorney.
Hey, I just noticed that the goof of a principal did not inform the Commercial Registry after having kicked me out of the company. So what am I to do?
The fact remains that the power of attorney is not valid anymore, but it might still be held against you as long as it is registered. Therefore, the principal has to apply that the procuration is deregistered. If he does not comply, you will have to take him to court.
My colleague informed me that I have to indicate my proxy with “ppa” next to my signature. I see no reason why I should. My procuration is registered, so what the heck?
The reason is the law. The proxy director's signature is complemented with the abbreviation “ppa.” – so German commercial tradition. The acronym is derived from Latin „per procura autoritate“, in English, with the power of procuration.