Procuration and signatory power explained

Who may sign a contract on the company's behalf? Who can take out a loan or sell the company's property? These questions are decisive in any business, and they are answered by the rules on procuration (in Danish "prokura") and signatory power ("tegningsret"). If you understand these concepts, you avoid entering into invalid agreements and protect the company against misuse.

What is signatory power?

Signatory power is the right to bind a company towards the outside world, that is the right to sign agreements, take out loans, sell assets and otherwise act on the company's behalf in a legally binding way.

Signatory power is determined in the company's articles of association and in the rules of the Companies Act. For an ApS or A/S, it is the signatory rule of the Companies Act (section 135) that provides that the members of the board and the executive management bind the company. The articles of association can set out a more specific signatory rule.

The signatory power always appears in the CVR register and can be verified by anyone.

Who has signatory power?

In an ApS or A/S, the following as a rule have signatory power, unless the articles provide otherwise:

• The board jointly (all board members sign)
• The executive management (one or more directors)
• Combinations of these

The articles can narrow this down to, for example:

• "The company is bound by two board members jointly"
• "The company is bound by the director alone"
• "The company is bound by the chair of the board and a director jointly"

It is crucial that the signatory rules in the articles are up to date and precise.

What is procuration?

Procuration is a special, statutorily regulated commercial power of attorney given to an employee or another person who is not necessarily a director or board member. A holder of procuration can act on the company's behalf in all matters that belong to the ordinary running of the business, but as a rule the holder cannot:

• Sell, buy or mortgage the company's real property (unless express authority has been given for it)
• Pass on the procuration itself to others (the holder can, however, give ordinary sub-powers of attorney for practical purposes)
• Make dispositions that lie outside ordinary operations or that are by law reserved to the top management

Procuration thus gives a broad authority within operational matters, but with these central limitations.

Procuration vs. signatory power: the key difference

Aspect	Signatory power	Procuration
Who holds it	The management/board	Appointed persons (typically employees)
Legal basis	The Companies Act (section 135 ff.) and the articles	Section 7 of the Act on Certain Commercial Undertakings / general agency rules; a written procuration declaration
Scope	All dispositions within the articles' limits	Ordinary operations, not real property
Registration	CVR	No CVR registration; proven by a procuration declaration (p.p.)
Central limitation	As the articles provide	Cannot dispose of or mortgage real property

The procuration rules

Procuration is a well-defined type of commercial power of attorney in Danish law. There is no longer a separate "Procuration Act" -- the old Act on commercial registers, firm names and procuration has been repealed. For personally owned undertakings (sole proprietorships, general partnerships (I/S) and limited partnerships (K/S), etc.), procuration is today governed by section 7 of the Act on Certain Commercial Undertakings (lov om visse erhvervsdrivende virksomheder). For limited companies (ApS/A/S) procuration rests on the general agency rules (the Contracts Act) and settled practice, where section 7 is applied by analogy.

Procuration is granted by the fully liable participants or by the management body authorised to do so under the articles (section 7(1)).

No CVR registration: Procuration is not registered in CVR. It is the signatory power (the management) that appears in CVR. Procuration is created and proven by a written procuration declaration, and the holder adds "p.p." (per procuration) to their signature so the counterparty can see that they act on the basis of procuration.

Limitations and third parties: Under section 7(3), limitations on the procuration generally cannot be invoked against a good-faith third party -- apart from joint procuration. Internal limitations therefore only apply in the relationship between the company and the holder (and can have internal employment-law consequences), but do not bind a good-faith third party as long as the holder acts within ordinary operations.

Single and joint procuration:

• Single procuration: The holder can act alone
• Joint procuration: Two or more holders must act jointly. Procuration can also be given jointly with a member of the management (section 7(2))

Revocation: Procuration can be revoked at any time (section 7(5)). Since procuration is not registered in CVR, a revocation takes effect towards a third party once it has come to that party's knowledge -- so notify the relevant counterparties. The principal's death does not in itself end the procuration (section 7(5)).

Limiting a procuration

It is possible to agree that a procuration only reaches:

• A particular business branch or department (for example a branch procuration)
• A particular geographic area
• Particular types of matter

Such limitations apply in the internal relationship between the company and the holder. Note, however, section 7(3): limitations (other than joint procuration) cannot be invoked against a good-faith third party. If the holder acts within ordinary operations, the company is therefore bound even if the holder has internally exceeded their authority. To limit with certain effect towards third parties, joint procuration is the right solution.

Power of attorney vs. procuration

Procuration is a broad, commercially regulated power of attorney that is proven by a written procuration declaration (p.p.). An ordinary power of attorney is an agreement that gives a person authority to act on another's behalf within defined limits.

An ordinary power of attorney does not require CVR registration but is limited to the authority expressly stated in the power of attorney document.

Procuration typically gives broader authority than a specific power of attorney, but is in return limited as regards real property and dispositions outside ordinary operations.

Practical examples

Example 1: A business manager signs a contract

Lars is employed as a day-to-day manager, but is not a director and has no procuration. He signs a supplier contract for DKK 500,000. The contract is not automatically binding on the company, unless the company subsequently approves it or has let Lars act in a way that creates a justified expectation on the counterparty's side (apparent authority).

Example 2: A procuration holder sells real property

Mette is a procuration holder in a company and signs a sale agreement for the company's office premises. A procuration holder cannot without more sell real property, so the agreement does not bind the company unless there is express authority from the management for precisely this disposition.

Example 3: Joint procuration

Anders and Birgit have joint procuration. Anders alone signs a contract with a new client. The contract is not binding on the basis of the procuration, as joint procuration requires both holders to sign.

How to create procuration (and change signatory power)

Procuration is not created in CVR. You create procuration by drawing up a written procuration declaration in which the company (the fully liable participants or the authorised management) states the holder's name and identification, whether the procuration is single or joint, and any internal limitations. The holder then signs "p.p." on the company's behalf. Keep the declaration so it can be shown to counterparties.

Signatory power, by contrast, is changed by amending the articles and registering the new signatory rule with the Danish Business Authority:

1. Log in to Virk.dk with MitID
2. Go to the company's self-service and choose to change the articles/company information
3. State the updated signatory rule
4. Register the change

When should procuration be considered?

Procuration is relevant when:

• The company has a day-to-day manager who is not a director
• A sales manager needs to be able to enter into contracts independently
• A branch manager needs to be able to act for the branch
• The company grows and the director cannot manage everything alone

Consider whether procuration is the right tool, or whether it is more appropriate to give a specific power of attorney for particular transactions.

Frequently asked questions about procuration and signatory power

Can a sole proprietorship have procuration holders?

Yes. A sole proprietorship can grant procuration to an employee, who can then act on the owner's behalf in operational matters.

What happens if the signatory power in the articles is not updated after a change of director?

An old registration in CVR can give a good-faith third party the right to rely on the registered signatory. Therefore update CVR immediately on a change of director.

Is procuration necessary to hire staff?

Hiring belongs to day-to-day operations and can be done by a person with signatory power or procuration. Very far-reaching employment agreements (for example of the top management) should be decided by the board.

Does procuration have to be registered in CVR?

No. Procuration is not registered in CVR -- it is the management's signatory power that appears in CVR. Procuration is created and proven by a written procuration declaration, and the holder signs "p.p.".

Conclusion

Procuration and signatory power are the foundation of the company's ability to act in a legally binding way in the outside world. Make sure your articles are up to date, that the signatory power is clearly defined, and that procuration is documented by a clear, written procuration declaration. Unclear signatory power is one of the most frequent causes of disputes about the validity of contracts.

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The content of this article is for guidance only and does not constitute legal advice. Consult a commercial lawyer for advice on your specific situation.