Who is a proxy and what is a proxy?

A power of attorney is one of the most important business powers of attorney and in practice it often determines who can validly sign contracts, negotiate with the bank or act against the authorities on behalf of the company. In this article, we will clearly explain who is a proxy and what is a proxy, what is the scope of a proxy’s powers, what are the restrictions when selling or encumbering real estate, what signing with a proxy addendum looks like, and what a separate vs. a joint proxy means. You will also learn how a proxy is granted and entered in the Commercial Register, when it expires, and what mistakes to watch out for to prevent invalid legal acts and unnecessary litigation.

What is a procuration?

A procuration is a special commercial power of attorney. Think of it as a broadly worded power of attorney granted by a company to act on its behalf: it authorises a specific person (the proxy) to do almost all the acts that are normally necessary in the running of the business on the company’s behalf. The law describes this in such a way that the proxy is empowered to perform all legal acts that occur in the operation of the business, even if a special power of attorney would otherwise be required. A special power of attorney (special power of attorney) is a power of attorney that gives the attorney-in-fact the authority to do a specific act or a specific type of act for which a general (general) power of attorney is not sufficient. Typically, it must be explicitly stated what exactly the attorney is authorised to do (e.g. signing a specific contract, transferring real estate, acting before an authority).

Procuracy in court representation?

A proxy may represent the company in court, generally without a special procedural power of attorney, in respect of matters that fall within the operation of the business.

• The power of attorney authorises the proxy to perform all legal acts that occur in the operation of the business, even if a separate power of attorney would otherwise be required.

For example, a proxy may:

• to file a statement of claim, statement of defence,
• sign submissions, motions, appeals,
• attend the hearing,
• enter into a settlement, recognise a claim, etc. (if it is still in connection with the operation of the business).

Procuration vs power of attorney?

Although both institutes are used to represent another individual (or company), there is a fundamental difference between them from a legal point of view.

• Power of attorney: the one who grants it (the principal) determines in what acts the authorised person (the attorney) may act. It can be specific (for one act, e.g. buying a car) or general (for all acts that the principal would be entitled to do). The scope is thus very flexible.
• Procuration: has a legally defined scope. A proxy is legally entitled to all legal acts that occur in the operation of the business. The company cannot, for example, prohibit him or her from signing contracts with a particular partner (such a restriction would be ineffective against third parties).

Who is a proxy

A proxy is an individual (a specific person) who is granted a proxy, a special business power of attorney with a very wide range of powers, by a company. In practice, this means that a proxy can act and sign for the company in both routine and important business matters related to the operation of the business (e.g. contracts with suppliers, orders, negotiations, administration). A proxy cannot be granted to a legal entity (e.g. another company, agency or consultancy firm); it must always be a specific natural person who is registered and traceable by third parties, including in the Commercial Register. This is important information for business partners: thanks to the entry in the register, they can verify who the proxy is, whether he acts alone or jointly with another proxy, and what his method of signing for the company is.

What a proxy can do in practice (examples)

For example, a proxy may typically:

• sign contracts with suppliers and customers
• communicate with the bank (routine transactions, loans, contracts, according to the bank’s internal rules),
• order goods/services, negotiate prices, complaints,
• sign lease agreements, service contracts, marketing contracts,
• represent the company in ordinary legal matters related to the business (including in court).

The most important proxy restriction: real estate

This is a key constraint that is sometimes forgotten in practice. A proxy without more has no right:

• dispose of (sell) real estate belonging to the company, nor,
• encumber the property (e.g. with a mortgage / easement).
  

Practically: if the company wants the proxy to also be able to alienate or encumber real estate, this must be specifically stated in the proxy.

Limited procuration?

The company can internally say, for example, that the proxy may not sign contracts over €10,000. But beware, such an internal restriction has no legal effect against third parties.

• If a proxy externally signs a contract that relates to the operation of the business, a third party may rely on the proxy to have acted lawfully, even if he or she has internally breached the rules.
• Such an act signed by the proxy is thus valid, the company resolves such an overstepping of the internal limitation against the proxy in the form of a claim (liability, damages).

Separate vs. joint proxy (when there are several proxies)

The firm may determine whether:

• the proxy acts independently, or
• they must act jointly (e.g. two proxies together, or at least two).
  

A joint proxy is a kind of safety insurance, so that one person cannot sign a large commitment alone, for example.

As a proxy he signs

The law requires that when signing it is clear that it is a proxy: the proxy attaches an addendum indicating the proxy and his/her signature to the company’s business name.

Proxy vs. managing director (simplest explanation)

• Managing director/statutor = the company itself externally (corporate body).
• Proxy = attorney of the firm (very powerful, but still an attorney).
  

The proxy acts in the name of the company and on its behalf. Obligations bind the company directly, not the proxy (unless there is a breach of duty, damage, criminal offence, etc.).

Exceeding the authorisation by the proxy

Overreaching by a proxy refers to a situation where a person with a proxy (the company’s representative in business relations) performs a legal act outside the scope of his or her proxy, for example, the sale of real estate without extending the proxy’s powers. Under Slovak law, such an act beyond the scope of the proxy binds the entrepreneur only if the third party did not know and, taking into account all the circumstances of the case, could not have known about the exceeding of the scope of the proxy.

The proxy allows the proxy to act in all acts in the operation of the business, including those requiring a special power of attorney, but excludes the alienation or encumbrance of real estate without express extension (Article 14 of the Commercial Code).

• Rights of the entrepreneur in case of exceeding the authorisation: he may claim compensation from the proxy for the damage caused by the exceeding.
• Rights of a third party: the act is valid if the third party did not know and could not objectively have known of the restriction.

The proxy can only be limited internally (e.g. by a proxy agreement), which protects the entrepreneur, but such a limitation is not effective against third parties.

Acting as a proxy in employment relations

In 2021, the Supreme Court of the Slovak Republic ruled on a lawsuit in which an employee sought a determination that his termination of employment was invalid. The reason for the dismissal was the employee’s redundancy following the manager’s decision to abolish the position. The employee argued before the court that the notice of termination was invalid because it had been signed by a proxy instead of the managing director, who was not authorised to do so. The Supreme Court, unlike the district and regional courts, agreed with the employee’s view and held that a proxy granted under the provisions of the Commercial Code does not entitle a proxy to act for a legal person in employment relations.

In this regard, the Supreme Court stated that “the purpose of a proxy is to appoint an agent of the corporation capable of binding the corporation externally in all matters of the operation of the business. However, a proxy is not a statutory body of the company. In view of the nature of this specific type of representation of the entrepreneur externally, the proxy does not include any of the activities that the statutory body does internally. His authority to terminate the employment of an employee cannot be inferred from the provisions of Section 14 of the Commercial Code.”

Who can grant a proxy (who gives it)?

A proxy may only be granted by an entrepreneur registered in the commercial register. In the case of legal entities, it is granted by a statutory body, for example the managing director, whereas in the case of a limited liability company it is the general meeting (unless the articles of association provide otherwise). A natural person, entrepreneur grants it himself.

Origin of the Procurements

The creation of a proxy is only established by registration in the commercial register, which has a constitutive effect, before which it is not effective against third parties. The entrepreneur first grants it in writing (deed or resolution), which serves as an annex to the application for registration. The application for registration must contain the name and residence of the proxy, the method of signature and, in the case of multiple proxies, the rules of cooperation (alone or jointly). The entrepreneur must be registered in the commercial register and the proxy must be a natural person with legal capacity.

Expiry of the procuration

The extinction of the proxy occurs according to the general rules of the Civil Code, as the Commercial Code does not regulate it directly. Deletion from the commercial register has a declaratory effect, the proxy is extinguished before, but the actions of the proxy after the extinction bind the entrepreneur to third parties, unless he proves their knowledge of the extinction of the proxy.

Methods of extinction

In particular, the procuration shall expire:

• By appeal to the entrepreneur.
• Testimony by proxy.
• By agreement of the parties.
• Death or loss of legal capacity of the proxy.
• Expiry of time, if granted for a fixed period.
• Dissolution of the entrepreneur without legal successor.

As long as there is no deletion from the register, third parties can rely on the proxy, the entrepreneur is bound unless he proves otherwise. The entrepreneur submits the petition for cancellation to the court with a written decision on the dissolution.

In conclusion

A procuration is a powerful tool for effective representation of an entrepreneur in business relations, but its use requires precise compliance with the legal conditions from creation through effectiveness to termination. A proxy acts broadly in the operation of a business, but restrictions in employment relationships or overreaching can lead to risks and disputes. If you are planning to grant or revoke a proxy, or are dealing with litigation arising from the actions of a proxy, contact Highgate Law Firm. Our business law experts can provide you with comprehensive advice, contract drafting and representation in court.