In business, executing deals and finalizing transactions is conducted by signing a contract. Aside from ensuring the contents of the contract is in line with the prevailing laws and regulations, it is also important to understand the authorized party who can sign a contract on behalf of a company, and the consequences if the signing is not done by the proper party.
When signing a contract, especially substantial contracts which can impact the company significantly, it is important for companies in Indonesia to understand which party has the authority to sign contracts, agreements and/or other forms of memorandum of understandings with other parties.
This is because the consequences of contracts and/or agreements signed by an unauthorized party can be fatal to the company, not limited to the possibility of the contract and/or agreement to be declared invalid, which may put the company at risk of huge losses.
In addition, since the contract agreed and signed by the parties then the contract will be said valid and binding subject to Article 1320 paragraph (4) Indonesian Civil Law. And also, once the contract is signed then the contract is legally bind the parties and be irrevocable except by consents from both parties or by any reason stipulated by the law.
Therefore, it is important to verified for the capability of the parties or capable in accordance to the law. Article 1330 of the Indonesia Civil Code states that by the parties entering into agreement shall be the person who considered and has authority and rights to enter into agreement, including it is important for companies in Indonesia to understand the authority party to represent the company in signing contracts and/or agreements.
BOARD OF DIRECTORS AS OFFICIAL COMPANY REPRESENTATIVE
The Board of Directors is the official representatives of the Company, which is authorized legally to represent the Company on the courts, and off the courts subject to Article 98 (1) of Law No. 40 of 2007 concerning Limited Liability Company (“Company Law”),
Since the Board of Directors may consist of more than 1 (one) person, each member of the Board of Directors shall have the authorization to represent the Company, unless stipulated otherwise in the Articles of Association of the company (Article 98 of Company Law).
In practice, any Director whose name is registered in the Articles of Association of the company can represent the Company to sign contracts and/or agreements unless stated otherwise. Some administrative documents may require a President Director to sign alongside the Director representing the Company.
Specific situations specified in the Articles of Association of the company may require the Board of Commissioners and/or the General Meeting of Shareholders to give prior approval to the signing of contracts and/or agreements fulfilling certain criteria, i.e. concerning loan agreements above a certain amount.
POWER OF ATTORNEY
Since Company Law made it clear that the official and lawful representative of the company is the Board of Directors, in practice, to have the Board of Directors sign for all contracts and/or agreements every single day at the office is impractical, especially for a large number of contract such as the employment contracts.
Therefore, other parties not registered as the member of Board of Directors in the Articles of Association may represent the company in signing contracts and/or agreements, pursuant to a Power of Attorney given by the Board of Directors which authorizes them to represent the company in signing the contracts and/or agreements.
This is pursuant to Article 103 of the Company Law, which gives the Board of Directors the right to grant a power of attorney in writing to 1 (one) or more employees of Company or other persons, to perform for and on behalf of the Company the certain legal acts specified in the power of attorney.
In practice, the Board of Directors commonly issues a special power of attorney for high-ranked management staffs such as the Head of Operation, Head of HR, which gives them the authority to sign the contracts and/or agreements relevant to their field, or even conduct other activities still in line with their job description.
NO SIGNING AUTHORITY
To our knowledge, in the event that a person who signed an agreement and/or contract on behalf of a company is found to have not obtain the authorization and/or was not the authorized party to represent the company in signing such agreement and/or contract, the person is considered unauthorized to represent the company.
The consequence is that the agreement and/or contract can be declared invalid by court, on the basis that the subject of the agreement does not have the authority to represent the company legally.
HOW CAN SMART CONSULTING HELP YOU?
To ensure a smooth investment and business operation from the legal perspective, but also still focus on maintaining your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with prevailingtrading laws and regulations.
SMART Consulting is an Indonesian Corporate Legal Services firm. We have assisted local and multinational companies in handling their corporate legal matters, including acting as a legal retainer in a legal advisory capacity for companies.
Contact Us Now to get your legal solution for your business goals, and still comply with the prevailing laws and regulations.