Both the power of representation and the delegation of powers allow their holder to bind a company validly. However, they must be distinguished one from the other by their extent: the power of representation is general whereas the delegation of powers is limited to a particular matter. This difference justifies why they follow different legal regimes, knowing that the legal regime of a general power of representation is obviously stricter than the legal regime of a delegation of powers.

The representation and the delegation of powers in a simplified joint stock company are at the heart of the current legal news linked to simplified joint stock companies.

If the question of the representation in a simplified joint stock company had apparently been solved by the Financial Security Act of August 1st, 2003, the question whether the limitations of powers of the general manager and the deputy general manager were enforceable against third parties still remained outstanding. A judicial decision dated July 9, 2013 by the Commercial Chamber of the “Cour de cassation” [French supreme court] finally provided an answer to that question, putting an end to the doctrinal controversies on that subject.
This decision is the opportunity to take a close look at the legal regime of the representation on the one side (I) and of the delegation of powers in this kind of companies on the other side (II) in a simplified joint stock company.

In a judicial decision dated July 2, 2002, the Commercial Chamber of the “Cour de cassation” asserted that only the chairman of a simplified joint stock company could represent it. By doing so, the judges clearly distinguished the representation from the management of the company. Indeed, if the company’s articles of association may freely institute management organs (article L.227-5 of the Commercial Code), they cannot modify the representation of the company, which is incumbent upon the Chairman only.

But this case law quickly became null and void after the Financial Security Act of August 1st, 2003, which added a new paragraph in article L.227-6 of the Commercial Code pursuant to which “The memorandum and articles of association may stipulate the circumstances in which one or more persons other than the chairman, having the title of general manager or assistant general manager, may exercise the powers conferred on the chairman by the present Article”.

Henceforth, may represent the simplified joint stock company:
-    the Chairman
-    and, if and only if the company’s articles of association allow it, persons named general manager or deputy general manager. They also must be specified on the “K-bis” extract [Extract from the French Trade Register].

Therefore, if the Chairman always has the power to represent the company, it is not true for general managers and deputy general managers. A simplified joint stock company may be managed by a Chairman and a general manager but may be represented by the Chairman only if the articles of association do not provide for a power of representation to the general manager.

In the same way, we can imagine a company managed by a Chairman and several (deputy) general managers where only one (deputy) general manager would have the power to represent the company, whereas they are all named “(deputy) general managers”. This may cause confusion; therefore, it is more careful to check on the “K-bis” extract that the general manager (deputy or not) has the power to represent the company.

In spite of the precisions brought by the 2003 Act, a question remained: could the paragraph 4 of article L.227.6 (which provides that “provisions in the memorandum and articles of association which limit the chairman's powers cannot be raised against third parties”) apply to general managers and deputy general managers ?

The Commercial Chamber of the “Cour de cassation” seems to answer “yes” to this question in a decision dated July 9, 2013.

This case involved two companies: Newspring and Swiss Post Solutions. The latter represented the rights of GBS Plus France. Newspring sued GBS in order to obtain the performance of a contract concluded in January 2009 with GBS’s general manager. The latter had a general power of representation according to the company’s articles of association. The purpose of this contract was to determine Newspring’s pay as business finder. But for this kind of contracts, the general manager was ordered to wait for the company’s new owner’s intructions. This order had even been mentioned to Newspring in July 2008. Therefore, the general manager was not authorized to enter into such a contract.

Even so, the “Cour de cassation” rules in favor of Newspring : GBS is bound by the contract into which its general manager entered, even if he was not authorized to do so.

The decision does not specify whether the limits on the powers of the general manager were provided for in the articles of association or not. However, the arguments of the decision let us think that the solution may apply to limits arising from a decision of the company’s organs.

Indeed, the “Cour de cassation” rules that the provisions of article L.227-6 of the Commercial Code must be construed “in the light of the provisions of article 10 of the directive 2009/101 of the European Parliament”, which provide that “the limits on the powers of the organs of the company, arising under the articles of association or from a decision of the competent organs, may not be relied on as against third parties, even if they have been disclosed”.

By doing so, the judges clearly increase the scope of article L.227-6 paragraph 4 of the Commercial Code to general managers and deputy general managers and seem to extend them to all limits on the powers, even if they were not provided in the articles of association. However, this last point will have to be confirmed.

As soon as articles of association give them a power of representation and that they are listed on the “K-bis” extract, general managers and deputy general managers have the same powers as the Chairman. If one of them enters into a contract, this undertaking will always bind the company, even if they have exceeded their powers.

The only case in which the company would not be bound is the case in which the contract is not within the company’s purpose and where the co-contracting party acts in bad faith (ie. knows it), which is very difficult to prove in practice.
The mandate of general manager or deputy general manager, when accompanied by a power of representation, must therefore be given very carefully.

The representation of a simplified joint stock company arises another question when it is chaired by a body corporate. Indeed, who this body corporate will appoint in order to represent itself in the company: its legal representative or another distinct permanent representative ?

This question has been the subject of a notice of the Committee of coordination of the Trade Register published on February 10, 2009. According to this notice, when the Chairman of a simplified join stock company is a body corporate, the latter is automatically represented by its legal representative. It does not seem possible to appoint a distinct permanent representative.

Indeed, the body corporate which is Chairman of the company is only identified by a “K-bis” extract including its name, its legal form, the address of the head office, the place of registration and the registration number ; since 2005, the identity of its manager is not mentioned any longer.

Therefore, the body corporate which runs a simplified joint stock company is automatically represented by its legal representative within this company.

Before the “Cour de cassation” ruled in two decisions dated on November 19, 2010, trial judges had set down strict conditions to the validity of the delegations of powers given within a simplified joint stock company.

Indeed, they refused to admit the validity of these delegations if they were not mentioned on the “K-bis” extract nor authorized by the articles of association. In other words, it was almost as difficult to give a delegation of powers, which is limited to a particular matter, as a general power of representation. As a consequence of this solution, some dismissals have been challenged because the letter of dismissal had been signed by a Human Resources Manager or by a Head of Department whose delegation of powers was not authorized in the articles of association nor mentioned in the “K-bis” extract.

The “Chambre Mixte” of the “Cour de cassation”, composed of the 2nd Civil Chamber, the Commercial Chamber and the Labour Law Chamber, has reversed this decision in two decisions dated on November 19, 2010 pursuant to which “if the company is represented by its Chairman and, if the articles of association allow it, by a general manager or a deputy general manager whose appointment is submitted to disclosure, this does not exclude the possibility, for these legal representatives, to delegate the power to perform determined acts like hiring or a dismissal “

Thus, the French Supreme Court clearly distinguishes legal representation from delegated representation.

If the legal representative must be identified and disclosed, this rule does not apply to the holder of a simple delegation of powers. Thus the contractual delegation of powers is now a legal and distinct way to represent a simplified joint stock company.

Judicial decisions published after these two decisions have confirmed this solution, which is now established in case law.

Therefore, the dismissal letter delivered by Human Resources Manager is fully valid as soon as the company’s legal representative has given to him a delegation of powers.

It must be noticed that the “Cour de cassation” does not submit this delegation to any formal requirement. Indeed, in the two decisions dated on November 19, 2010, it admits that “any provision requires the delegation of powers be written; it can be given by tacit agreement and result from the functions of the employee who ran the dismissal”. It results from this decision that in matter of dismissals, delegations of powers may be freely established without any formal nor disclosure requirement.

In principle, the company is not bound by contracts in which a delegatee who has exceeded his powers is entered into. However, in the two decisions dated on November 19, 2010, the “Cour de cassation” seems to admit the possibility of ratification a posteriori of the contract, which would bind the company. The judges add that this ratification may be formal or by tacit agreement. Therefore, the company might be bound by a contract in which a delegatee who has exceeded his powers entered into if the judges consider that the company has tacitly ratified this act.

In spite of the two decisions handed down by the “Chambre Mixte” of the French Supreme Court on November 19, 2010, the question of the legal nature of the delegation remains. Decisions which have been handed down by the “Cour de cassation” seem to assert that a delegation follows the rules which apply to a mandate.

But for a part of the doctrine, this solution is not fully convincing if we consider the distinct consequences which are respectively attached to delegation and mandate. Indeed, in a delegation, criminal liability is shifted from the delegator to the delegatee, whereas there is no such liability shift in a mandate.
According to a part of the doctrine, the delegation would follow the rules of a unilateral act, which is less regulated by French law. The “Cour de cassation” could link this unilateral nature to the “broadest powers” which are recognized to management organs or to the sovereignty of shareholders’ meetings.

However, French law does not specify the legal regime of such a delegation, whereas the regime of mandate is fully developed in the Civil Code.

According to these judicial decisions, the question of which persons might efficiently represent the simplified joint stock company is now clarified:

 

• the general manager and/or the deputy general manager have a general power of representation if it is authorized by the articles of association and mentioned in the “K-bis” extract : therefore, they may bind the company in all matters and the potential limitations on their powers will not apply to third parties.
• an employee duly authorized may bind his company in a determined matter in virtue of a contractual delegation of powers. If the delegatee has exceeded his powers, the company will not be bound except if it has confirmed the contract a posteriori, even tacitly.