A company does not sign on its own. It always acts through a person, whether its director, a manager or someone holding a power of attorney. If that person lacks the powers the act requires, the deal can stall.
The problem often comes up late, when the bank reviews the power or the other side in a lawsuit challenges the representation. That is why it is worth reviewing before you need it.
This article covers commercial companies governed by Mexico's General Law of Commercial Companies (Ley General de Sociedades Mercantiles), such as the sociedad anónima and the S.A.S. It does not cover representation before labor or tax authorities, which have their own rules, or powers granted abroad.
Who represents a Mexican commercial company?
Representation belongs to its director or directors. They may carry out all operations within the company's corporate purpose, except for what the law or the bylaws expressly restrict.
In a sociedad anónima, when there are two or more directors they form a board of directors. The shareholders' meeting, the board or the director may also appoint managers, who hold the powers expressly granted to them.
In a S.A.S., representation is in the hands of a director, who must be a shareholder. If the company has a single shareholder, that person is the director. By virtue of the appointment alone, the director may enter into the acts and contracts within the corporate purpose or directly related to the company's existence and operation.
So the first step is reading the bylaws. They show who manages the company, what powers that person has and which acts need a shareholders' resolution.
How does a company grant powers of attorney?
There are two main routes. The first is a resolution of the shareholders' meeting or the board of directors. For that power to take effect, it is enough to have the relevant part of the minutes formalized before a notary (protocolización).
The minutes must be signed by those who acted as chair or secretary of the meeting or board, and they also sign the notarial instrument. A delegate specially appointed for that purpose may sign instead.
The notary must record the company's name, domicile, duration, capital and purpose. The notary must also record the powers the bylaws give to the body that granted the power.
The second route is for the sole director or managers to grant powers within their own authority. A delegate may also act if authorized to grant them. That authority must be established. Being appointed to sign the formalization of a resolution does not, by itself, authorize the delegate to grant other powers.
The board is a collective body and acts by resolution, as in the first route. Article 149 belongs to the rules for the sociedad anónima. Article 273 extends those rules to the S.A.S. where they do not conflict with its special provisions.
The form of a general agency authorization does not depend on who grants it. Article 2555 of the Federal Civil Code provides for a public deed or a letter of authority before two witnesses. The grantor and witnesses must have their signatures ratified before the appropriate authority.
Section III also covers authorizations to perform acts that must be recorded in a public instrument, such as a real estate sale requiring that form. This requirement must be reviewed when formalizing the power.
For a company power to be presented to a bank, a notary or a registry, using a public deed is recommended. Before considering a ratified letter of authority, confirm which document the institution accepts. Formalizing a shareholders’ or board resolution follows the route in article 10 of the General Law of Commercial Companies.
What kinds of general power of attorney exist?
Federal civil law, which applies on a supplementary basis to commercial acts, recognizes three general powers:
- For lawsuits and collections (pleitos y cobranzas). It allows suing, answering claims and pursuing collections on behalf of the company. Receiving payments requires a special clause.
- For acts of administration. It allows managing assets and ordinary business, such as signing operating contracts.
- For acts of ownership (actos de dominio). It grants an owner's powers over the assets, such as selling or encumbering them, along with the power to defend them.
For administration and ownership powers, it is enough to state that the power is granted with that character for the attorney-in-fact to hold every power of that kind. For lawsuits and collections, the law requires a broader wording, explained below. If the powers are to be limited, the limits must be written into the power, or the power must be a special one.
A single instrument can combine several kinds. What matters is that the kind of power matches the act to be signed. A power to administer is not enough to sell real estate owned by the company.
Which powers need a special clause?
For lawsuits and collections, the law lists acts that require a special clause. They include withdrawing a claim, settling, submitting to arbitration, answering or posing the sworn questions of party-confession evidence (absolver y articular posiciones), seeking a judge's recusal and receiving payments.
If the general power states that it is granted with all general powers and the special ones that require a special clause under the law, those powers are included. If it does not say so, the attorney-in-fact may lack them exactly when the lawsuit needs them.
Who can sign promissory notes and other negotiable instruments?
A separate rule applies here. The power to act on someone's behalf does not include the power to bind them through bills of exchange or promissory notes, unless the power of attorney or a written statement says so.
The law provides two ways to grant that power. One is a power of attorney recorded in the Public Registry of Commerce, which is valid against anyone. The other is a written statement addressed to the person with whom the representative will contract, which is valid only as to that person.
Directors and managers are deemed authorized to sign bills of exchange and promissory notes on behalf of the company by the fact of their appointment. The limits of that authority are those set in the bylaws or the powers.
Anyone who signs an instrument on behalf of another without sufficient authority becomes personally bound, as if they had signed in their own name. If you are going to collect a promissory note signed by a company, it is worth checking who signed it and with what powers. We cover this in our article on collecting a promissory note.
When does a power of attorney stop working?
Federal civil law provides that a power of attorney, and the agency behind it (mandato), ends by revocation or by the attorney-in-fact's resignation. It also ends by the death or legal incapacity of either party, and by expiration of its term or completion of the business.
If the power was granted for a set period, it stops working when that period ends, even if nobody revoked it. Check the date before presenting it to a bank, a notary or a court.
The General Law of Commercial Companies states that powers granted by the director, board or managers of a sociedad anónima can be revoked at any time. Civil law excepts a power granted as a condition of a bilateral contract or as a means to fulfill an obligation. Whether that exception applies to a company’s powers depends on the case.
In the cases excepted by civil law, the attorney-in-fact cannot resign either. Article 2596 also requires whoever revokes or resigns at an inopportune time to compensate the other party for the resulting loss and damage.
For the sociedad anónima, article 150 adds another rule. When the term of the person who granted the power ends, the power is not extinguished for that reason alone.
When management changes, review which powers remain in force and which should be revoked. If the power was given to deal with a specific person, the revocation must be notified to that person. Otherwise, the company may be bound by what the attorney-in-fact does with that person afterward, as long as the third party acted in good faith.
The company must also request the return of the documents establishing the power, including the notarial copies (testimonios). Under article 2598, a principal who neglects to demand those documents is liable for damage that omission causes to third parties acting in good faith.
Should powers of attorney be recorded in the Public Registry of Commerce?
The Commercial Code allows the company's electronic file to note the powers and appointments of officers, as well as their resignations or revocations. The law makes that entry optional, for electronic commerce and inquiries.
Even so, it may be needed for certain acts. The clearest case is negotiable instruments, where a recorded power is valid against anyone. It also lets third parties check who represents the company.
Questions before using or requesting a power of attorney
- Who manages the company today, and what powers do the bylaws give that person?
- Is the act I will sign one of lawsuits and collections, administration or ownership?
- Does the power include the powers that require a special clause, such as settling or receiving payments?
- Does the power expressly authorize signing negotiable instruments, and is it recorded if needed?
- Does the power have a term, and is it still in force on the date of the act?
- Has management changed, and are there earlier powers that should be revoked?
- Are the minutes of the meeting or board that granted the power formalized and signed by the right people?
The first two define which power is needed. The rest tell you whether the one you have is enough or whether a new one must be granted before signing.
Official sources
The corporate rules come from the current text of the General Law of Commercial Companies. Representation by the director and formalization of powers are in article 10. Management of the sociedad anónima and the board are in articles 142 and 143. Managers are in articles 145 and 146. The authority to grant powers and their revocation are in article 149. The survival of powers when a term ends is in article 150. Representation of the S.A.S. is in article 267, and the supplementary application of the sociedad anónima rules in article 273. The supplementary role of federal civil law is in article 2 of the Commercial Code, and the optional recording of powers is in section VII of its article 21. From the Federal Civil Code, we used articles 2553 and 2554, on general powers and their limits, and article 2555, on their form. Powers that require a special clause are in article 2587. Termination of the agency (mandato) is in article 2595, revocation in article 2596 and its notice in article 2597. Article 2598 addresses the return of documents and liability for neglecting to demand them. Representation for signing negotiable instruments is in articles 9, 10 and 85 of the General Law of Negotiable Instruments and Credit Transactions. Article 174 of that law applies article 85 to promissory notes.
This content is informational and does not constitute legal advice. Reviewing a power of attorney depends on the company's bylaws, the act to be performed, the authority or person before whom it is presented and the date it was granted.