When an individual signs a contract on behalf of a company, applies for financing, provides a guarantee, appears before a Notary Public, or acts before a governmental authority, one fundamental question must be addressed before any action is taken: Does the individual actually have sufficient authority to bind the company?
Often, this issue is verified too late—after the act has already been carried out, and doubts arise regarding the validity of the representation or the scope of the powers granted.
The existence of a power of attorney does not, in and of itself, mean that its holder is authorized to perform any act on behalf of the company. Its scope will depend on the powers granted, the limitations imposed, the company’s bylaws and, where applicable, the nature of the act to be carried out.
When this review is conducted after the document has been signed, the options for correcting insufficient authority may be much more limited and complex. The problem can result in delays in a transaction, difficulties in formalizing it with third parties, or even challenges to the validity of the transaction.
Granting corporate powers of attorney is not just another administrative formality. Imprecise wording can leave the company without sufficient representation for important transactions or, conversely, grant broader powers than were actually intended.
Therefore, the proper definition, documentation, and review of signing authorities must be part of preventive Corporate Governance. It is not merely a matter of determining who can sign, but of ensuring that such a person can validly bind the company at the appropriate time and under the appropriate terms.
Here are five mistakes we frequently see:
- Confusing the type of power of attorney with the powers that are actually needed. Article 2554 of the Federal Civil Code distinguishes three general powers of attorney: litigation and collection, acts of administration, and acts of ownership. They are mentioned together but serve different purposes. Assuming that a “broad” power of attorney covers any future transaction creates obstacles precisely when it needs to be used.
- Failing to have the agreement granting the power of attorney notarized. Simply including the power of attorney in the minutes of a shareholders’ meeting or board meeting is not sufficient to establish its validity against third parties. Article 10 of the General Law on Commercial Companies requires that the relevant portion of the minutes be notarized. Without this formality, a bank, a government agency, or a counterparty may simply refuse to recognize the authorized representative.
- Failing to register the power of attorney or its revocation with the Public Commercial Registry. Registration may be optional in some cases, but it provides certainty in relation to third parties and allows for verification of who represents the company. And it does not end upon the granting thereof: when the powers are no longer necessary, their revocation must also be formalized and registered.
- Assuming that a change in the company’s management automatically revokes previous powers of attorney. The General Law on Commercial Companies is clear: the fact that someone leaves office does not automatically terminate the powers of attorney they granted during their tenure. Every change in management or corporate restructuring should include a review—and, if necessary, a formal revocation of the existing powers of attorney.
- Granting disproportionate powers without limits or controls. Not every authorized representative needs general and unlimited powers. A power of attorney can be limited by amount, term, type of transaction, territory, client, bank account, or joint signatures. Maintaining an up-to-date internal record—who has what powers, since when, with what limits, and whether it remains in effect—reduces the risk of misuse.
At VAHG, the drafting and review of corporate decisions, powers of attorney, corporate records, and other corporate documentation are an essential part of our Corporate Practice. The experience we have gained in these matters allows us to identify inconsistencies and anticipate potential representation risks before they affect a transaction.
A thorough review of powers of attorney prior to signing can prevent a representation issue from becoming a corporate, contractual, or financial obstacle. In these cases, prevention begins long before the document is signed.
| Elvia Rios Saldaña | Partner
+52 (33) 38171731 Ext. 228|erios@vahg.mx |
Luis Andrés Estrada Intriago | Senior Associate
+52 (33) 38171731 Ext. 224 | lestrada@vahg.mx |
Valeria Hernández Orozco | Paralegal
+52 (33) 38171731 Ext. 227 |vhernandez@vahg.mx
**The publication of this document does not constitute legal, accounting or professional advice of any kind, nor is it intended to be applicable to particular cases. This document refers to laws applicable in Mexico.