Board member as a holder of procura - is it permitted?
Baiba Orbidane, Junior Associate
Procura has earned the trust of businesspersons in Latvia as a practical and convenient solution for representation of companies in their day-to-day activities. The law does not establish express restrictions of holders of procura. However, a question arises can really any legally capable individual be a holder of procura? This article reviews one of such exceptions, involving management board members of a company.
The restriction is highly related to the role and functions of the management board. The law provides that the management of a company is carried out by the management board appointed by shareholders (or supervisory board) in order to perform the decision-making and representation functions of the company. Meeting of shareholders has an exclusive competency to determine whether the members of the management board, when managing the company, shall represent the company jointly or they may represent the company individually. The decision-making function is executed jointly by all members of the management board together, but representation (joint or individual) derives from the will expressed by the shareholders. The members of the management board are obliged to comply with the decisions of the meeting of shareholders.
The meeting of shareholders can decide that the members of the management board can only jointly represent the company and include this requirement in the charter of the company. If the management board itself issues the procura to one of the members of the management board to represent the company individually on the basis of procura, the will of the meeting of shareholders and its trust in the management board are thereby violated. The shareholders have a privilege to decide who shall be the representative of the company. If they had preferred that the company is represented by one specific person they would have elected the particular person as the member of the management board and granted him/her the right to represent the company individually. If the shareholders have decided otherwise, their decision should be respected.
By delegating daily duties of the members of the management board to the holder of procura who is also the member of the management board, the will of the shareholders is to a certain extent ignored and the ability of other members of the management board to carry out the functions delegated to the holder of procura is thereby “neutralized” or even blocked.
This approach is sometimes used in cases where there are disputes between the shareholders of the company and also the appointed members of the management board, blocking adoption of proper decisions and daily management of the company. Such approach, however, does not correspond to the intentions of the lawmaker whose intention has been that the management board shall carry out legal representation of the company – be identified with the company. Therefore, the law cannot be interpreted and applied in a manner implying that the lawmaker has entitled the management board to create itself a double who would carry out the same functions, but who would in fact be a small part of it, because it consists of just one member of the management board.
It would be absurd to assume that the members of the management board are concurrently the legal and contractual representatives of the company with different scope of powers as well as liability, allowing the members of the management board to choose in what situation what role would be more convenient for them.
Therefore, there is a basis to conclude that not all legally capable individuals can be the holders of procura, i.e. members of the management board of the particular company may not be the holders of procura. It is clear that, even though the law establishes no express restriction, interpretation of the law leads to a conclusion that issue of procuras to the members of the management board should not be permitted.