Representation by Managing Directors: Sole or Joint Representation?
You are setting up a company with one or two partners and suddenly face a question that easily gets lost in the excitement of founding: who is actually allowed to sign contracts once the business is up and running? May each of you act alone, or must several of you always sign together? The question sounds technical at first, but in everyday business it determines how quickly contracts can be concluded and how much mutual control is in place.
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At a glance
Who may represent your GmbH or UG externally is determined when the company is set up. You should know these points before you come to the notary appointment:
- The representation rules determine above all whether a managing director may act alone or whether several authorised representatives must act together.
- They are usually laid down in the articles of association and published in the commercial register. The statutory model protocol provides for only one managing director and does not allow individually deviating rules.
- Sole representation means that the authorised managing director can represent the company alone. With several managing directors, this power can be granted to all or only to individual managing directors, depending on the articles of association. With joint representation, several act together.
- For business partners, the representation rules published in the commercial register are of central importance. Internal restrictions such as amount limits or consent requirements generally have no effect on third parties.
- A separate issue is the frequently mentioned exemption from Section 181 of the German Civil Code (BGB). It concerns in particular cases in which a managing director concludes a contract with themselves on behalf of the GmbH or also represents the other contracting party, and must be distinguished from sole and joint representation.
What does representing the company actually mean for you?
Once registered in the commercial register, the GmbH or UG is an independent legal entity with its own rights and obligations. It cannot sign anything itself, but needs people who act on its behalf. Those are the managing directors.
The representation rules determine above all whether a managing director may act alone or whether several authorised representatives must act together. Which transactions additionally require internal approval can be regulated separately in the articles of association, in rules of procedure or by shareholder resolutions.
Two terms are often treated as the same here, although they mean different things legally. Management is the internal running of the company: organising day-to-day business, complying with legal obligations, implementing the strategy. Representation is acting externally: appearing on behalf of the company in a legally binding way, for example by signing contracts. In practice, both often fall to the same person, but legally they are two different levels.
A second distinction is also important for you, and it is often muddled in everyday life: the one between the external and the internal relationship.
- External relationship: Towards business partners, banks or authorities, the representation rules published in the commercial register are of central importance. The power of representation itself follows from the law, the articles of association and valid resolutions. The commercial register makes these arrangements visible to the outside world.
- Internal relationship: Among the shareholders, you can additionally define who is responsible for which area or what requires approval. If a managing director does not comply, this can have internal consequences. As a rule, it does not affect the validity of a transaction externally.
This is exactly the point that surprises many people: an internal agreement that a managing director should not conclude contracts over EUR 10,000 alone usually does not protect you towards a business partner. As a rule, the contract can still bind the company. That is why it pays to choose the representation rules deliberately from the outset.
The statutory starting point is Section 35 of the German Limited Liability Companies Act (GmbHG): the GmbH is represented by its managing directors. If several managing directors are appointed, joint representation applies in principle unless the articles of association provide otherwise. If one or more managing directors are to be able to represent the company alone, this requires a corresponding basis in the articles of association. These often contain an enabling clause on the basis of which individual managing directors can be granted sole power of representation by shareholder resolution.
Sole or joint representation: what suits you?
At its core, this is a trade-off between speed and mutual control. The decision often only becomes noticeable in everyday business: a lease has to be signed at short notice, the bank demands a further signature or a managing director is on holiday. The rules should therefore fit not only the relationship between the founders, but also their actual working processes.
It helps to go through a few specific questions in advance: Do contracts often have to be signed at short notice? Are all managing directors regularly available, even during holidays or illness? Should an individual be able to enter into larger commitments alone? And how important is a second check on long-term contracts to you?
Sole representation: fast and uncomplicated
Sole representation means that a managing director with sole power of representation can represent the company alone. Depending on the arrangement, this power can be granted to all or only to individual managing directors. It keeps decision paths short and is practical, especially when things have to move quickly or not everyone is always available. The downside: anyone who may act alone can also bind the company alone, without consultation.
Joint representation: more mutual control
Joint representation means that several managing directors must act together. If several managing directors are appointed and the articles of association contain no deviating rule, they must in principle all represent the company together. Instead, the articles often provide that two managing directors act jointly or one managing director acts together with an authorised signatory (Prokurist). For transactions subject to joint representation, a managing director generally cannot bind the company alone. The price is more coordination, because several authorised representatives must take part in many declarations and contract conclusions.
With joint representation, you should also consider what happens in the event of illness, prolonged absence or the departure of a managing director. An arrangement that works well with several people can temporarily lead to delays if someone is unavailable. Whether the company then remains able to act depends on the specific rules in the register and the remaining managing directors.
Mixed forms for more flexibility
There is room between these two poles. A common arrangement is representation by one managing director together with an authorised signatory (Prokurist). An authorised signatory is not a managing director, but receives a separate power of representation under commercial law, which is also entered in the commercial register. Such mixed forms must be clearly provided for in the articles of association or validly resolved on their basis and entered in the commercial register. Whether this additionally requires an amendment of the articles with notarisation depends on the existing rules.
Common representation models at a glance
| Model | Brief description |
|---|---|
| Sole representation | Each managing director can represent the company alone. |
| Joint representation | Two or more managing directors must act together. |
| Combination MD/MD | Two of several managing directors represent the company jointly. |
Many founding teams initially choose sole representation for practical reasons. Before deciding, however, it is worth running through a critical scenario: what happens if one managing director concludes a long-term contract that the others do not support? Those who discuss this question beforehand usually choose the rules more deliberately.
Wording you will come across in the commercial register
Anyone reading a commercial register extract or articles of association will come across recurring terms. A brief explanation helps to understand the document:
- General representation rules: the basic rule on whether managing directors represent the company individually or only jointly.
- Sole representation: the named managing director may act alone.
- Joint representation: several authorised representatives must act together.
- Representation together with an authorised signatory: a permissible mixed form in which a managing director acts together with a Prokurist.
- Exemption from Section 181 BGB: permits so-called self-dealing to the extent provided for, more on this below.
What does the exemption from Section 181 BGB mean?
Section 181 BGB concerns in particular cases in which a managing director concludes a contract with themselves on behalf of the GmbH or also represents the other contracting party. An exemption can make such transactions possible to the extent provided for. It must be distinguished from the question of whether a managing director may represent the company alone or only jointly. How far such an exemption extends depends on the specific arrangement.
An example from practice
Two founders start a GmbH together, both become managing directors and both receive sole power of representation because it is simply more practical in everyday business. For a while, this works well. Then one of them signs a longer-term lease for a larger office, which the other only learns about afterwards. Externally, the contract is in principle valid and binds the company. Internally, a dispute arises because the decision should actually have been taken jointly.
Had both managing directors only had joint power of representation, the lease would in principle have required the involvement of both. A mere internal consent requirement, by contrast, would mainly have had internal consequences and would generally not have automatically released the company from the contract with the landlord. The example shows that this is not about mistrust, but about clarity. Precisely among people who get on well, it pays to discuss such cases once in advance.
What the rules mean in day-to-day business
The choice has a direct effect on ongoing operations. It shows less in theory than in everyday moments:
- Banks, contracting partners and authorities can see which signatures are required to represent the company.
- During holidays, illness or absence, joint representation can temporarily lead to delays if not enough authorised representatives are available.
- Breaches of internal responsibilities or consent requirements can trigger internal liability consequences without, as a rule, affecting the validity of the transaction externally.
A clear rule prevents the discovery that a second signature is missing only at the bank appointment, when signing a lease or in front of an important business partner.
How the notary supports you with the representation rules
Most people come to the notary appointment with questions, not with ready answers. That is a good thing. The notary explains the legal options for representation and shows what each arrangement means for your everyday business.
The decision itself remains yours: the founders determine how much capacity to act and how much control they want. The notary does not represent the interests of one shareholder against the others, but attends to all parties independently and impartially and explains the legal consequences of the chosen arrangement. In principle, the shareholders also decide on the appointment of the managing directors. How the company is represented follows from the law and the articles of association. Insofar as the articles allow, individual powers of representation can be shaped by shareholder resolution.
A later change is possible. If the articles of association have to be amended for this, the amending resolution must be notarised and generally only takes effect upon entry in the commercial register. If the existing articles already permit the desired arrangement, a shareholder resolution may suffice depending on the case. The amended power of representation must then be filed with the commercial register in publicly certified form. You will find an overview of the basic roles and bodies in the article on the structure of a company.
Clarify the representation rules within the team in advance rather than at the table with the notary. If it is settled before the appointment who is to represent the company alone or only jointly, the meeting runs more calmly and fewer questions remain open.
What to pay particular attention to with representation rules
- unclear or contradictory wording in the articles of association
- sole representation chosen without considering the consequences of unilateral action
- internal agreements wrongly understood as protection towards third parties
- illness, prolonged absence or the departure of a managing director not considered in the arrangement
- changes to the power of representation not filed with the commercial register properly or in time
More from the series: the notary appointment
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Frequently asked questions about representation by managing directors
As a corporate body, the GmbH is represented by its appointed managing directors. Whether they may act individually or only jointly follows from the law, the articles of association and valid resolutions. In addition, authorised signatories or other authorised persons, for example, can act for the company within the scope of their respective powers. For business partners, the representation rules published in the commercial register are of central importance. Internal restrictions generally have no effect on third parties.
Yes. Depending on the articles of association, one managing director may, for example, have sole power of representation while another may only act together with a further managing director. The specific arrangement must be clearly regulated and filed with the commercial register.
Without a managing director, the GmbH generally cannot conclude new legal transactions through its management. However, if it has no management, it is represented by law by the shareholders for the receipt of declarations of intent and service of documents. The shareholders should nevertheless appoint a new managing director promptly.
Yes. If the articles of association have to be amended for this, the resolution must be notarised and generally only takes effect upon entry in the commercial register. If the existing articles already permit the arrangement, a shareholder resolution may suffice depending on the case. The amended power of representation must then be filed with the commercial register in publicly certified form.
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Set clear representation rules before formation
The rules should be legally clear and at the same time fit the actual processes in the company. Would you like to clarify which solution suits your founding team? At the notary appointment, the legal options and their consequences can be discussed and the arrangement chosen by the shareholders implemented with legal clarity.
