Law on Business Companies (“Official Gazette of RS”, no. 36/2011, 99/2011, 83/2014 – other laws, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021 – from now on: the Law) in Article 33 determines the co-signature as a type of restriction of the authority of the representative of the company.
This limitation may be provided for a legal representative, procurator or other representatives. If a co-signature limits the power of representation, the representative to whom this limitation applies cannot undertake legal affairs or legal actions without the co-signature of a specific person.
A co-signatory can be determined by position, in which case the co-signatory is any person holding that position. Also, the co-signer can be determined by specifying personal data (e.g. name and surname) and in another way by which the co-signer can be determined.
The founding act can limit the power of representation by co-signature. Still, it can also be provided by the decision of the authority on the appointment of the representative.
If the restriction is determined by the act on the appointment of the representative, the power that made the decision can cancel the restriction at any time, which must be registered with the Agency for Economic Registers of the Republic of Serbia because the legal effects of the limitation are linked to the registration.
A natural person, as well as a legal person, can be designated as a co-signatory. If the co-signatory is a legal entity, his legal representative authorises the co-signatory, namely a legal representative who is a natural person. However, if the co-signature of a legal entity also limits his power of representation, this may lead to a series of co-signatures because the Law does not contain a ban on such series.
If the co-signatory is determined by specifying the function, the change of the person performing the position to which the co-signature is attached does not affect the limitation of representation by the co-signature. But, if the co-signatory is a designated person, with the termination of that person (death of a natural person or termination of a legal entity), by applying the general rules of the legal system, the conclusion is reached that the limitation of the authority of representation by the co-signature also ends because that limitation was related to the identity of the co-signatory.
The right of co-signature does not represent a property right, i.e. a right eligible for inheritance by applying the general norms on inheritance.
According to Article 33, paragraph 3 of the Law, the limitation of the power of representation by co-signature can be asserted against third parties only if registered. Registration is done at the Agency for Business Registers. The restriction is visible in the part where the representative is registered, whose representation authorisation is limited by the countersignature.
The limitation of co-signature without registration does not legally affect third parties. Still, it can lawfully affect the relations between the representative and the company.
The representative must act according to the restrictions, regardless of whether the limitation is registered or not and whether registration is a condition for the restriction to produce legal effects towards third parties.
Who can be a co-signer?
The Law does not offer a straight answer to whether the co-signer must be one of the representatives or the co-signer can also be a person who does not have the power of representation – he is not registered as a representative in the APR register.
However, the Law’s provisions exclude the possibility of certain persons being registered as co-signatories. Excluded as co-signatories are members of the supervisory board, persons to whom appropriate protective measures have been imposed, procurators and other persons when special legal norms exclude the possibility of a joint exercise of powers of representation.
In a company with bicameral management, the supervisory board members cannot be representatives of that company because the Law prohibits this in the provisions of articles 228 and 433. For this reason, they are excluded as co-signatories.
A procurator cannot represent a company in specific legal affairs (relationships) in which a legal representative can (legal matters related to real estate, issuing a bill of exchange, loan, credit, etc.).
Therefore, if co-signature means authorisation of representation, the procurator cannot represent the company and conclude a contract in all types of legal relations, co-signing it with the legal representative because he does not have the authority to represent the company in specific legal affairs. An exception is provided for joint stock companies, namely in provisions 388 paragraph 5 and 422 paragraph 6 of the Law.
In the case of joint-stock companies with a unicameral management organisation, according to the provisions of Article 388, paragraph 5 of the Law, the statute, the decision of the assembly or the decision of the board of directors may limit individual or all executive directors in representing the company and with the co-signature of the procurator.
In the case of joint-stock companies with a bicameral management organisation according to the provisions of Article 422 paragraph 6 of the Law by statute, by a decision of the assembly or by a decision of the supervisory board, if the supervisory board is authorised to do so by the statute, individual or all executive directors may be limited in representing the company and with the co-signature of the procurator.
Legal consequences of lack of co-signature
The Law on Business Companies does not regulate the legal consequences (sanctions) due to lack of co-signature. Article 33, paragraph 3 of the Law stipulates that the limitations of the representative’s authority in the form of co-signature (as well as joint representation) can be asserted against third parties if registered. Therefore, a possible legal consequence is linked to highlighting this deficiency.
The answer about the legal consequences of giving a declaration of will by the representative without a countersignature, although the countersignature was mandatory, depends on understanding the nature of the countersignature.
If the co-signature is understood as representation, i.e. if the co-signatory is also a representative, then the legal consequences of the lack of a co-signature occur through the application of general regulations on representation by an unauthorised person.
Giving a declaration of will by a representative without a co-signature, which also represents a declaration of intention of the representative, must be interpreted as a representation by an unauthorised person.
Article 88 of the Law on Obligations regulates the legal consequences of such representation. The provisions of this article refer to contracts but are also applicable to other legal affairs. However, the requirements of Article 88 of the Law on Obligations cannot be applied to institutes that do not belong to legal matters. Practically, only decision-making situations related to business management are exempted. Limiting the authority to represent the director by co-signature does not imply limitation of the power to conduct business by co-signature, which is not even possible due to the nature of the relationship.
According to the provisions of Article 88 of the Law on Obligations, a contract concluded by a person as a proxy on behalf of another without his authorisation binds the unauthorised representative only if he subsequently approves the agreement.
The party with whom the contract was concluded may request the unauthorised representative to declare whether he adopts the contract within a reasonable period. If the unauthorised representative does not approve the agreement even within the deadline, it is considered that the contract has not been concluded. In that case, the party with whom the contract was concluded can claim compensation for damages from the person who, as a proxy, concluded the contract without authorisation if, at the time of concluding the contract, he did not know or should have known that that person did not have the authority to conclude the contract.
These rules that apply to contracts also apply to other legal matters but not to decisions.
Concerning the acts with which the company addresses the court or other state authority, the act should be considered irregular and act following the rules of the appropriate procedure that apply to irregular acts (unless the rules of that procedure provide otherwise).
However, if the co-signature is understood as approval and not a representation by the co-signer, then other norms should be applied that resolve this situation. Article 55 of the Law on Obligations regulates the situation when the deed of a legal entity stipulates that its representative can conclude a contract only with the consent of an authority of that legal entity, provided that such restriction is registered.
If consent is not given, it is considered that the contract has not been concluded.
This means the legal consequence is identical to Article 88 of the Law on Obligations when an unauthorised person concludes the contract.
According to the provisions of Article 55 of the Law on Obligations, when a general act of a legal entity is determined and entered in the register that its representative can conclude a specific contract only with the consent of authority, the permission can be given previously, simultaneously or subsequently, if nothing else is entered in the register.
The other party has the right to invite the legal entity so that its authorised body declares within a reasonable period whether it gives consent. If the latter does not do so, it will be considered that permission has not been given.
Subsequent consent has a retroactive effect unless otherwise agreed.
If consent is not given, it is considered that the contract has not been concluded. When, according to the provisions of this article, it is considered that the contract has not been concluded, the conscientious party may demand fair compensation from the legal entity. The rules mentioned above are also applied when the general act of a legal entity stipulates that the representative can conclude a contract only with a certain body of that legal entity.