What is the responsibility of a commercial proxy in an LLC?

What is the responsibility of a commercial proxy in an LLC?
Marek Cieślak

Marek Cieślak

CEO CGO Finance

Due to a number of obligations, the shareholders of a limited liability company decide to appoint a commercial proxy. His person is to help in the management of the enterprise. What is the responsibility of a commercial proxy in an LLC? What is the nature of commercial proxy? You will find the answers in the article below.

Distinctive features of representation by a commercial proxy

Procuration is a special type of power of attorney, based on which the commercial proxy acts on behalf of his principal. Legal consequences of the actions affect the latter. Below you can find some distinctive features of such representation:

·         Commercial nature – only an entrepreneur registered in Central Registration And Information On Business (Polish CEIDG) or National Court Register can grant a commercial proxy.

·         Subjective scope – only a natural person with full legal capacity can be a commercial proxy.

·         Written form required – failure to comply with it results in the invalidity of the legal act.

·         Includes activities related to running a business.

·         Limited and exclusive operations – commercial proxies cannot appoint another commercial proxy. They can only grant a special power of attorney or appoint a proxy for a specific task.

·         A specific scope of activity – it is determined by the act.

·         Obligatory registration.

·         Possibility of dismissal from the function at any time.

·         Carrying out all matters falling within the scope of commercial representation based on a power of attorney in a simple written form.

Commercial power of attorney is a commercial law institution that is also part of civil law. It is directly regulated by the Civil Code and it constitutes a form of representation. Therefore, in matters that are not settled, the provisions on the commercial power of attorney will first apply. Then, if necessary, the general provisions of the Civil Code are taken into consideration. The specific nature of commercial power of attorney is also crucial for the liability of the commercial proxy.

What is the responsibility of a commercial proxy in an LLC?

The scope of the commercial power of attorney is relatively broad. It includes both legal actions, e.g., representing the company in legal proceedings, and extrajudicial actions. The latter may include signing agreements or incurring financial liabilities. According to the legislator’s assumption, it is impossible to limit commercial representation with effect towards third parties.

The legislator has identified a certain group of matters to which the commercial proxy is not entitled. To perform such operations, a separate power of attorney is necessary. These operations include:

·         Transfer of the enterprise,

·         Temporary transfer of the enterprise’s use,

·         Sale of real estate

·         Encumbrance of real estate

The extent of a commercial proxy’s liability is related to the scope of the commercial power of attorney. It is also affected by other powers of attorney granted during representation. Thus, as long as the proxy acts within his area of representation, he is not liable for his actions.

Liability of a commercial proxy in an LLC in Poland – Falsus procurator

Exceeding the scope of the commercial power of attorney triggers specific consequences. These depend on the type of legal action.

In the case of contracts, the liability indicated in art. 103 of the Civil Code of a commercial proxy who has exceeded the scope of his powers depends on the confirmation of the legal act by the principal. This means that if the legal action performed by the proxy with another person is not confirmed, the contractor may apply for:

·         return of benefits obtained by such a proxy as a result of the performance of the contract. The claim arises regardless of the contractor’s awareness of the scope of the commercial proxy’s powers.

·         for compensation for the damage suffered by the other party due to signing the contract without knowledge about the lack of authorization or exceeding its scope. It arises only when the legal act was performed by a person unaware of the lack of authorization on the part of a commercial proxy.

What is important, the commercial proxies’ liability here is objective. It is independent of their knowledge or intention. They are liable on these grounds even if they did not know and, exercising due diligence, could not have known that they were acting without authorization. The aggrieved party is not obliged to prove that the action of the other party was at fault.

Unilateral legal acts performed on behalf of another party without authorization or exceeding its scope are invalid. This results from art. 104 of the Civil Code. In practice, it most often applies to various types of declarations (e.g. announcing a tender) or business transformations. The potential liability of such a commercial proxy may result from:

  • the provisions on unjust enrichment and delicts or
  • art. 103 § 3  of the Civil Code (by analogy).

Regardless of the legal basis of liability, a commercial proxy must return any benefits received from the performed act. He will be also obliged to fully compensate for any damages. This results from general regulations on ex delicto liability ( Art. 415 et seq.). Alternatively, he can be responsible for compensation only up to the limit of negative interest of the contract. This results from the provisions of Art. 103 § 3 of the Civil Code.

What are the responsibilities of a management board member in an LLC in Poland? Find out from this article.

Culpability as the basis of a commercial proxy’s liability in an LLC

As long as commercial proxies act within the scope of granted authorization, they are not liable for their actions. But, when they exceed the scope of authorization or act on behalf of the company after the expiration of the granted power of attorney, they are liable based on fault (Art. 415 of the Civil Code). For a commercial proxy to be held liable on a fault basis, the following circumstances must occur:

  • a damage
  • a causal link between the commercial proxy’s behaviour (action/omission),
  • a fault of commercial proxy.

The fault in a commercial proxy’s behaviour must directly concern himself.

This means that he is responsible for his own actions. The aforementioned causal link must be adequate. This means that it shall constitute a natural consequence of the proxy’s action or omission. The commercial proxy will be held liable for both lost benefits and the company’s losses.

Liability of a commercial proxy in LLC based on other grounds

An often-discussed issue, due to the specificity of law, is the liability of a commercial proxy based on grounds other than those above. In this regard, it must be noted that a commercial proxy:

·         is not liable based on Article 299 of the Commercial Companies Code. This basis has been extended to liquidators, not to commercial proxies. This is directly indicated in Article 2991 of the Commercial Companies Code. In other words, a proxy is not liable for the company’s obligations.

·         is not liable for the principal’s tax obligations.

·         is not liable for failing to submit a bankruptcy petition for the company within the deadline. This results from Art. 21 § 2 of the Bankruptcy Law. The Supreme Court in its ruling of 15 March 2013, file no. V CSK 177/12, stated that a commercial proxy has the right, but not the obligation, to submit a bankruptcy petition.

The amendment of regulations introduced on 1 January 2016, unequivocally determined the lack of such liability for a commercial proxy.

What is the responsibility of a commercial proxy in an LLC? – Summary

Commercial power of attorney is a specific institution by which a proxy obtains certain rights to represent the company. At the same time, the scope of his responsibilities and liability are legally defined. This allows to maintain the balance of economic transactions of an enterprise.

If you find the above topic interesting and want to know more about it, do not hesitate to cooperate with us. Our legal experts from Łódź and Warsaw are at your disposal. Contact us today and let us help you.

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Marek Cieślak

CEO CGO Finance