How is the power of representation of the board of directors of an association regulated?
March 29, 2022 | 50,00 EUR | answered by Otto Krebs
Dear lawyer,
I am reaching out to you because I am a member of the board of a association and I am unsure about the authority of the board to represent the association. I am wondering to what extent the board is authorized to legally represent the association and what limitations exist in this regard.
The current situation is that our association has experienced significant growth in recent years and we are facing new challenges that require a legally secure representation of the association. I want to ensure that we as the board are acting correctly and not risking any legal problems.
Currently, as the board, we regularly enter into contracts and make decisions that bind the association. However, I am not clear on whether we are always acting within our authority to represent and whether we may be exposing ourselves to liability risks.
My concerns are that as a board member, I could be personally liable for actions of the association that are outside of my authority to represent. Therefore, I would like to learn more about the legal regulations and find possible solutions to minimize liability risks.
Therefore, my specific question is: How is the authority of the board of an association regulated and what legal framework must be considered? Are there ways to reduce or secure liability risks for board members? I thank you in advance for your support and expertise.
Sincerely,
Lukas Schneider
Dear Mr. Schneider,
Thank you for your inquiry regarding the representative authority of the board of directors of an association. It is understandable that as a board member, you are concerned about your legal position and potential liability risks. I would be happy to explain to you in detail how the representative authority of the board of directors is regulated and what legal framework conditions need to be considered.
In principle, the representative authority of the board of directors is regulated in Section 26 of the Civil Code (BGB). Accordingly, the board of directors represents the association in legal and extrajudicial matters. This means that the board of directors is authorized to represent the association externally and to conclude contracts on behalf of the association. The representative authority of the board of directors is therefore extensive and includes all transactions that serve the purpose of the association.
However, there are also limits to the representative authority of the board of directors. These result, on the one hand, from the statutory provisions of the association. It is important that the association's statutes contain clear regulations regarding the authority to represent the board of directors. If the statutes provide for restrictions or limitations of the representative authority, these must be strictly observed.
On the other hand, the management powers of the board of directors must be taken into account. The board of directors is generally responsible for the management of the association and can only conclude transactions that fall within these management powers. Transactions that fall outside the management powers may require the approval of the general meeting.
As for the liability risks for board members, they are generally liable for damages caused by their activities. To minimize liability risks, I recommend that you take out a D&O insurance (Directors and Officers Liability Insurance). This insurance provides protection for board members in the event of liability claims and can help reduce personal liability risks.
In summary, it is important that as a board member, you are familiar with the representative authority of the board of directors and adhere to the legal framework conditions. By establishing clear regulations in the statutes, observing the management powers, and obtaining a D&O insurance, you can minimize liability risks and represent the association legally.
I hope this information is helpful to you and I am available for any further questions.
Sincerely,
Otto Krebs
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