Meaning
Regulatory rule in German law that limits the external effect of internal restrictions on a manager’s power. According to gmbh act paragraph 37, any limitation of the managing director’s authority in the articles of association or by shareholder resolution has no legal effect on third parties. This ensures that contracts signed by the manager remain valid even if they exceeded their internal permission.
External Power
Market participants can rely on the manager’s signature without checking internal bylaws. If a manager signs a contract for a production line that was supposed to be approved by the board, the company is still bound to the supplier. This prevents the firm from using its own internal rules to escape bad deals.
Third Protection
Security of commercial traffic is the primary goal of this provision. By protecting the counterparty, the law facilitates smoother transactions and reduces the due diligence required for every minor contract. The risk of the manager’s disobedience is shifted from the public to the shareholders.
Legal Certainty
Business operations would be paralyzed if every signature had to be verified against private internal documents. The gmbh act paragraph 37 provides a clear boundary between the internal permission and the external capacity. While the manager may be liable internally, the external contract remains a demonstrated fact.
