Being a company manager does not give a person unlimited authority to act on behalf of the company. A manager must exercise their duties within the scope of the authority granted to them and in accordance with the Companies Law, the company’s Articles of Association or bylaws, and the resolutions governing its management. The applicable legal framework determines the nature and scope of the manager’s authority and how it may be exercised, depending on the company’s legal form and the body authorized to manage it.
Risks may arise when a manager enters into a contract, provides a guarantee, or disposes of a company asset without observing the limits of their authority. This may lead to a dispute over the validity of the transaction and its legal consequences. The manager may also incur liability if their actions cause harm to the company, its shareholders or partners, or third parties as a result of violating the law or the company’s constitutional documents, or due to error, negligence, or failure to properly perform their duties.
How Can Your Company Protect Itself from the Risks of Exceeding Authority?
Effective protection begins with establishing a clear framework for powers and responsibilities. This framework should define signing and approval authorities, identify decisions that require the approval of shareholders, partners, or the board of directors, where applicable, and establish financial limits for each authorized person. The company should also review its Articles of Association or bylaws, appointment and delegation resolutions, and the information registered with the Commercial Registration before entering into material commitments.
A general delegation of authority does not override statutory or internal restrictions applicable to certain transactions. This is particularly important in matters that may require specific approval or authorization under applicable laws or the company’s constitutional documents, including certain related-party or conflict-of-interest transactions and transactions involving the company’s assets and interests. The manager must also avoid conflicts of interest and must not use the company’s assets, information, or business opportunities to obtain a benefit for themselves or for another person.
Accordingly, clearly defining management authorities, documenting delegations, and reviewing material decisions before they are implemented are not merely administrative measures. They form an essential part of effective corporate governance, helping protect the company’s interests and reduce the risk of disputes and legal liability.