When Can We Cancel a Contract
06_When Can We Cancel a Contract_december_2012_KY
The sole owner of the capital of a single-member limited liability company (EOOD) manages and represents the company either in person or through a manager appointed by the owner. Under the Bulgarian laws, in cases where a company participates in another company, the rights of the former as a partner or sole owner are exercised by the person who is entitled to represent it or another person explicitly authorized for these purposes.
At present, there exists a substantial contradiction between the recurrent case law and the practice of the Registrations Agency, and the Companies Registry in particular, as to whether the selection and appointment of a manager in a single-member limited liability company (EOOD) deprives the sole owner of the capital of the right to represent the company whose capital he owns.
On the one hand, there is the habitual practice of courts to assume that the management and representation of an EOOD may be exercised by the sole owner of its capital side by side with the manager of the company.
Courts accept that the representation of a single-member limited liability company, pursuant to Article 65(3) of the Commercial Code (CC), may be performed both by the sole owner of the capital and by the manager of the company in case the latter has been appointed and entered into the Companies Registry.
The appointment of a manager of an EOOD is a form of delegation of powers, whereby the delegating person does not lose the powers but creates an additional opportunity for representation of the company. The selection and appointment of a manager of an EOOD does not deprive the sole owner of the capital of the right to represent his own company.
There is an ever more pronounced trend for registration officers to refuse registration in cases in which the documents of an EOOD are submitted to the Companies Registry, bearing the signature of the sole owner of the capital rather than the manager. Their line of reasoning is that when a company participates in another company, the rights of the former as a partner of a sole owner are exercised only by the person authorized to represent it, i.e. the registered manager.
The refusals given by registration officers in such cases run counter to the common practice of courts.
It is noteworthy that, at present, when the refusals (acts) of registration officers at the Registrations Agency are attacked in court, the competent courts typically repeal these acts.
The grammatical interpretation of the law leads to the conclusion that it regulates both the management and the representation of single-member limited liability companies. In accordance with the legal provisions the sole owner of the capital manages and also represents the company and this may happen either in person or through a manager designated by the owner.
The term “management” encompasses activities related to the internal relationships within the company, whereas “representation” implies relationships of the company with third parties. The law places both activities within the remit of the powers of the sole owner and explicitly states that the owner may exercise them in person.
The representation of an EOOD, too, is performed in person. This is an essential deviation from the rules of representation of a limited liability company. The Commercial Code is explicit in placing representative powers within the powers of the sole owner. These powers may be exercised either in person or through a specially designated manager and the question of material importance is whether the sole owner loses the rights of a representative when a manager is appointed.
According to the legal doctrine powers may be delegated only by the holder of such rights. Undoubtedly, the sole owner of an EOOD has representative functions. Therefore it is the sole owner who is the only one entitled to designate and appoint a manager. The delegation of powers, in its essence, is authorization of a certain person to exercise certain rights which their holder has either ex lege or by virtue of a transaction. However, it should be remembered in this connection that the delegating party does not lose these rights because of the act of delegation. Delegation does not mean transfer of rights from the legal domain of one person to the legal domain of another person. The holder of these rights retains them. He only designates one more person to have the same powers and exercise them on behalf of their holder either ex lege or by virtue of a legal transaction.
Taking into account the above, one inevitably comes to the conclusion that the Registrations Agency, Companies Registry should bring its practice into conformity with the case law in these cases.