Authorities of the management board member

There are always misunderstandings regarding the commencement and termination of the authorities of the management board members and the respective register entries, therefore we hereby take a closer look at these issues.

Duration of the term of office

It often occurs that a glance at the registry card of a company shows that authorities of the present management board members have expired. Since January 2011 the management board members for private limited liability companies can be elected for undefined term, before that a term had to be set for their term of office. In the case of public limited liability companies the term of office of the management board members is from three to five years.

Commencement of the authorities at the appointment to the office

The authorities of the management board member commence at the moment of adoption of the decision by shareholders or supervisory board to elect the respective management board member and the Commercial Registry entry regarding the management board member is purely informative and not legislative. It means that when the decision has been adopted regarding the appointment of the management board member but the respective documentation has not been submitted to the Commercial Register, the authorities of the management board member are nevertheless valid. This, in turn, does not mean that respective entry petition should not be submitted to the Commercial Register – the managements of companies should keep in mind that the documents regarding the election of members of governing bodies or extension of their authorities must be submitted immediately after signing such documents. Although the entry regarding the management board member at the registry card of a company has declarative and not legislative meaning, the company nevertheless must ensure that the entries in the Commercial Register are correct.

The correctness of the registry entry is also important in view of the transactions concluded on behalf of the company, we will delve further into this below.

Recalling of the management board member

The governing body that elected the management board member may recall him/her at any time for any reason. Also in such instance the respective decision must be submitted along with entry petition to the Commercial Register immediately. With the recalling of a management board member his/her authorities expire and his/her relations with the company are terminated at the moment of adoption of the respective decision, unless the governing body adopting the decision has not stated otherwise in the decision.

Resigning from the management board

The management board member him/herself may also at any time resign from the management board for any reason by informing the governing body that elected him/her. In the case of private limited liability company such body is usually the shareholders’ meeting but if the company has supervisory board, then the supervisory board must be informed of the resigning. In the case of public limited liability the notice must be submitted to supervisory board. The notice should preferably be submitted to all shareholders or supervisory board members, but if that proves impossible or unreasonable, it is enough to submit the notice to most of the shareholders or supervisory board members.

When the respective notice has been submitted to the shareholders or the supervisory board, the management board member is considered resigned in the eyes of the company and the former board member shall no longer be liable for any subsequent transactions or activities if the company.

If the management board member has submitted the resignation notice to correct person(s) but his/her name has not been deleted from the registry card of the company, it is at first advisable to inquire from the shareholders or supervisory board as to why the information of his/her resignation has not been submitted to the Commercial Register.

If it is not possible to communicate with the shareholders or the supervisory board or they show no interest in performing the required activities, then a notarised petition should be submitted to the Commercial Register in order to inform the Commercial Register of the fact of the resignation accompanying the copy of resignation notice and (if possible) proof of delivery (e-mail correspondence, post office certificate regarding the delivery of the notice etc.). The Commercial Register will thereafter provide the company with a term for performing the necessary activities and if the company still fails to submit the required petition the Commercial Register will delete the former management board member form the registry itself.

Registry entry and third parties

When the authorities of the management board member have terminated due to expiry, recalling or resignation but the change has not been made in the Commercial Register for any reason, then the third parties can still take the entry of the Commercial Register as basis for any decisions or actions. This means that in a situation where a person with expired authorities is still marked in Commercial Register as management board member and such person performs a transaction on behalf of the company, such transaction must be viewed as valid toward the third party.

In such instance only the basis for the liability of the management board member toward the company is changed – as the contractual relation between the management board member and the company has been terminated the previously contractual liability of the management board member turns into non-contractual liability.

This means that while the management board member had valid contractual relation with the company, his/her liability toward the company derived from that contract. However, for transactions performed after the expiry of the authorities of the management board member and for his/her ensuing liability the provisions of the Law of Obligations Act regarding negotiorum gestio (intervention in another’s affairs without their prior consent), unlawful causing of damage and unjustified enrichment are applied.

The validity and expiry of the authorities of the management board member must be distinguished from the contractual relation with the company. The contractual relation between the management board member and the company is in its essence an authorisation agreement (or service agreement) and the rights and obligations deriving therefrom will expire in compliance with the agreement. This means that usually such agreement itself provides the grounds and possibilities for its termination. Such agreement is often tied to the term of office of the management board member, but it might not include the provision that the agreement expires automatically with the expiry of the term of office.

In Avokaado you can create management board agreement, decisions regarding the election of new management board member or regarding changes in the management board, you can also create the resignation notice.

You can always ask from the helpdesk what kind of document you should conclude and there is information included with each document on when to use it. You can also find answers to frequently asked questions regarding the specific document. In order to create the document the user will answer questions, the tooltips next to the questions explain further the contents, court practice and other circumstances related to the questions. When the questions have been answered the Avokaado system creates the final document momentarily. There is no need to download the document, it can be shared directly from Avokaado portal to any addressee and explanations or comments can be added to it.

Avokaado 26.07.2017