Question: I and Mr. H jointly contributed capital to establish a limited liability company (LLC), in which I hold 40% of the charter capital and Mr. H holds 60%. Mr. H is the legal representative of the company. At the beginning of 2024, Mr. H, on behalf of the company, signed a house lease agreement with Ms. A, with the rental value exceeding 65% of the company’s assets. This agreement was not approved by the Members’ Council. Was Mr. H authorized to sign this lease agreement?
Answer:
In this situation, Mr. H’s signing of the house lease agreement, where the rental value exceeds 65% of the company’s assets, without the approval of the Members’ Council, is beyond his authority.
According to the provisions of the 2020 Law on Enterprises (Articles 56 and 59), the legal representative of a multi-member LLC (in this case, Mr. H) is only authorized to carry out transactions of significant value (typically over 50% of the company’s assets) after obtaining the approval of the Members’ Council. In this instance, since the house lease exceeds 65% of the company’s assets, Mr. H was required to obtain approval from the Members’ Council before signing the agreement.
If Mr. H failed to follow this procedure, the signing of the agreement may be considered ultra vires (beyond his authority), and the contract could potentially be deemed invalid if company members or related parties do not consent to the signing.
Therefore, Mr. H’s signing of this contract without the approval of the Members’ Council is not in accordance with the legal authority as prescribed by law.
