Beware the differences of signatory power in Swiss company law

Although Chinese and Swiss company laws are similar in general outline, numerous differences exist in the details. One such divergence lies in the origin and exercise of signatory power. We have seen Chinese investors entrusting a “friend” with their entire Swiss company, extending them signatory power without knowing what that actually means until suffering great, in some cases irreparable, losses.

A valid signature

Signing a contract means acknowledging the rights and obligations written therein. As companies can only act through representatives, the signature of the representative, if valid, will constitute rights and obligations for the company, rather than for the representative as an individual.

The representative is thus in a strong position to establish contractual relationships (i.e. mutual rights and obligations) for the company. Both the company and the contracting partner have to be protected against possible abuse of the signatory power by the representative. The major risk for the company is to be bound to its detriment, and for the contractual partner that the invalidity of the representative’s signature leads to the invalidity of the contract.