Companies limited by shares, that is the limited liability company and the joint-stock company, represent one of the two groups of capital companies identified under the provisions of the Commercial Companies Code (“CCC”). In the case of both of the above companies, the law requires that certain acts in law be performed only with the approval of the shareholders, general meeting, or supervisory board. The effects of failure to provide such approval can be of two kinds.
Firstly, pursuant to Article 17 of CCC, where the statute requires a resolution of the shareholders, general meeting, or supervisory board for an act in law performed by the company, an act in law performed without the required resolution is invalid. Significantly, the approval may be given prior to the company’s declaration or thereafter; no later, however, than within two months of the date on which the declaration is made (such confirmation has retroactive effect as of the date on which the act in law was performed, which means that the legal act starts producing legal effects once performed).
The situation changes when the approval of the company’s relevant corporate body is required solely under the company’s articles of association. An act in law performed without such approval is valid which, however, does not exclude the liability of members of the management board or liquidators towards the company for a breach of the articles of association.
The above regulations act as general principles introduced by the Commercial Companies Code. However, there are also specific provisions which exclude the pain of invalidity laid down under Article 17 of CCC quoted above. For example, Article 230 of CCC provides that disposal of a right or contracting of an obligation to provide performance whose value exceeds twice the value of the share capital of a limited liability company requires a resolution of the shareholders, unless the articles of association provide otherwise. Moreover, the following sentence of the regulation excludes the application of Article 17 § 1.
Another scenario deserving scrutiny is the case when a resolution of the company’s corporate bodies approving the performance of a legal act is subsequently annulled or declared invalid. Where the validity of an act performed by the company depends a resolution of the meeting of shareholders, annulment of such resolution has no effect vis-à-vis third parties acting in good faith (Article 254 §2 of CCC). Consequently, annulment of or declaring a resolution of the company’s corporate bodies invalid does not affect the legal standing of a third party acting in good faith. One could say that for a third party the validity of the resolution continues. The same applies to a resolution of the company’s corporate bodies that is declared invalid.
In order to examine the legal standing after an act in law is performed by a company limited by shares without the required approval of that company’s corporate body, one first needs to determine whether the approval requirement is laid down under provisions of general application (i.e. the statute) or under the company’s articles of association. Based on that determination, the act in law either remains valid or not.