4Main Characteristics of Corporations and Limited Liability Companies

4.6 Governing bodies

The governing bodies of a company (a limited liability company or a corporation) are the shareholders’ meeting and the directors (who may or may not be organized as a board of directors, as explained below).

4.6.1 Shareholders’ meetings

The shareholders’ meeting is the supreme governing body of an S.A. or S.L.

The following table sets out the main aspects and characteristics of shareholders’ meetings:

SHAREHOLDERS’ MEETING
Types	Ordinary: An ordinary shareholders’ meeting may be held as and when stipulated by the bylaws, provided it takes place within the first six months of the financial year, in order to review the management’s conduct of the business and to approve, if appropriate, the financial statements of the prior year and the proposed distribution of profit. If the ordinary shareholders’ meeting is not held within the legal term, it may be called, at the request of any shareholder and subject to a prior meeting with the directors, by the Court Clerk or the Commercial Registrar pertaining to the registered office.
Types	Special: Any meeting of the shareholders other than an ordinary meeting is a special shareholders’ meeting. A special shareholders’ meeting may be called: By the company’s directors if and when they consider it in the company’s interests to do so. By the company’s directors when requested to do so by shareholders representing at least 5% of capital stock. In this case, the directors must call the meeting so requested to be held within two months of the date of the notarial notification in such connection. By a court if the directors disregard the notification referred to above.
Venue	Unless established otherwise in the bylaws, both ordinary and special shareholders’ meetings must be held in the municipality in which the company has its registered office (Spanish companies must be domiciled in Spain).
Meeting call	The formal requirements for calling a meeting, which relate to publicity and advance notice, are the same for ordinary and special meetings. Shareholders’ meetings must be called by way of an announcement published on the website of the company where it has been created, registered and published on the terms provided for in the Capital Companies Law. Where the company has not resolved on the creation of its website or the website is not yet duly registered and live, the call must be published in the Official Commercial Registry Gazette and one of the large circulation newspapers of the province in which its registered office is located. As an alternative to the call methods detailed in the preceding paragraph, the bylaws of corporations and limited liability companies with registered shares may provide for calls to be made by any form of individual, written notice ensuring the receipt of the notice by all of the shareholders at the address designated for such purpose or that recorded in the company documentation. In the case of shareholders residing abroad, the bylaws may provide that they will only be individually called if they have designated an address for notifications in Spain.
Universal shareholders’ meetings	Regardless of the type of shareholders’ meeting (ordinary or special), the formal call requirements need not be followed if shareholders representing one hundred percent of the capital stock are present and unanimously agree to hold a shareholders’ meeting. Such meetings are called universal shareholders’ meetings.
Quorum for meetings to be deemed to have been validly convened	*S.L.*: One third of the votes corresponding to the shares into which the capital stock is divided.
	*S.A.*	On 1^st call: General rule: Where the attendees represent at least 25% of the voting capital stock (the bylaws may provide for a higher percentage). Special resolutions: In order to validly resolve on a capital increase or reduction or any other amendment to the company bylaws, the issue of debentures, the elimination or limitation of preemptive acquisition rights over new shares, as well as re-registrations, mergers, spin-offs and the global transfer of assets and liabilities or the relocation of the registered office abroad, the shareholders present in person or by proxy must represent at least 50% of the subscribed voting capital stock. *On 2^nd call (due to the absence of sufficient quorum* on 1^st call): General rule: The meeting will be deemed to have been validly convened regardless of the percentage of the capital stock present or represented. Special resolutions*: In order to validly resolve on a capital increase or reduction or any other amendment to the company bylaws, the issue of debentures, the elimination or limitation of preemptive acquisition rights over new shares, as well as re-registrations, mergers, spin-offs and the global transfer of assets and liabilities or the relocation of the registered office abroad, the shareholders present in person or by proxy must represent at least 25% of the subscribed voting capital stock. The company bylaws may provide for special requirements for meeting calls and quorums* that may not be less than those required by the Capital Companies Law (those described above) under any circumstances.
Majorities for the adoption of resolutions	*S.L.*	General rule: A majority of the votes validly cast where they represent at least one-third of the votes under the shares into which the capital stock is divided (blank votes do not count). Qualified majorities: A capital increase or reduction and any other amendment to the company bylaws will require the affirmative vote of at least one half of the votes corresponding to the shares into which the capital stock is divided. Authorization so that directors may pursue, for their own account or the account of others, the same, similar or supplementary types of activities as those under the corporate purpose; the elimination or limitation of preemptive rights under capital increases; re-registrations, mergers, spin-offs, global transfers of assets and liabilities and relocations of the registered office abroad and the removal of shareholders will require the affirmative vote of at least two-thirds of the votes corresponding to the shares into which the capital stock is divided. In addition to the proportion of votes established by the law and the bylaws, the bylaws may require the affirmative vote of a certain number of shareholders, higher than the number established by the law, without reaching unanimity.
Majorities for the adoption of resolutions	*S.A.*	General rule: A simple majority (more votes in favor than against) of the votes of the shareholders present in person or by proxy. Qualified majorities: A capital increase or reduction and any other amendment to the company bylaws, the issue of debentures; the elimination or limitation of the right to acquire new shares; re-registrations, mergers, spin-offs, global transfers of assets and liabilities and relocations of the registered office abroad, and the removal of shareholders: where the capital stock present in person or by proxy exceeds 5%, it will be sufficient for the resolution to be adopted by an absolute majority. However, the affirmative vote of at least two-thirds of the capital stock present in person or by proxy at the shareholders’ meeting will be required where, on second call, shareholders are present that represent twenty-five percent or more of the subscribed voting capital stock but less than fifty percent. The company bylaws may increase the above majorities.
Proxies	*S.L.*	Shareholders may only be represented at shareholders’ meetings by their spouse, ascendants or descendants, by another shareholder or by a person with general powers conferred in a public document with authority to manage all of the assets owned by the principal in the country. The bylaws may authorize representation by other persons. Representative authority must be conferred in writing. Where not recorded in a public document, it must be specially conferred for each shareholders’ meeting. The representative authority will relate to all of the shares held by the represented shareholder.
Proxies	*S.A.*	All shareholders entitled to attend may be represented at the shareholders’ meeting by another person, even where such person is not a shareholder, unless otherwise provided for in the bylaws. Representative authority must be conferred in writing or by a means of distance communication that meets the requirements established by the law for the exercise of distance voting rights and on a special basis for each shareholders’ meeting.

4.6.2 Managing body

An S.A.’s executive managing body is its director or directors, who need not be Spanish citizens. However, the directors (individuals or legal entities) will need to obtain a taxpayer identification number (N.I.F.) or foreigner identity number (N.I.E.) (for more information, see section 3 of Chapter 2).

The board of directors represents the company in dealings with third parties in all acts within the scope of its corporate purpose. The company is bound to any third parties who have acted in good faith and without serious negligence, even with respect to acts outside the scope of its corporate purpose as registered at the Commercial Registry. Any limitation on the representative powers of the managing body, even if registered at the Commercial Registry, is not binding on third parties.

The management may be entrusted to:

A sole director.
Several directors acting on a several or joint basis.
A board of directors. Resolutions may be validly adopted in writing and without holding a meeting, provided certain requirements are met.

The bylaws may establish different means of organizing the management, granting the shareholders’ meeting authority to choose between any of them without the need to amend the bylaws. Listed companies must necessarily be managed by a board of directors.

Where there is a board of directors, it must comprise (i) in the case of limited liability companies, a minimum of three and a maximum of twelve members; and (ii) in the case of corporations, a minimum of three members, with no maximum statutory limit whatsoever.

A director is normally not required to be a shareholder unless the bylaws expressly provide otherwise.

Directors are appointed by the shareholders’ meeting.

Appointment as a director becomes legally effective when accepted by the appointee and must be registered at the Commercial Registry within a stipulated period of time.

The term of office of directors is expressed in the bylaws. In the case of limited liability companies, the term may be indefinite, while in the case of corporations it may not exceed six years (four years in the case of listed companies), and directors may be reelected for one or more additional periods of not more than six years (or four years, in the case of listed companies). The term of office must be the same for the board members.

The shareholders’ meeting can freely dismiss the directors at any time.

The following paragraphs refer to some special features of a board of directors:

BOARD OF DIRECTORS
Powers	The board may delegate its functions to one or more managing directors or to an executive committee of board members, except for the following powers which may not be delegated in any circumstances: The power to supervise the effective functioning of any committees which it may have formed and the actions of delegated bodies and of any senior management personnel it has appointed. To determine the company’s general policies and strategies. To authorize or discharge obligations deriving from the duty of loyalty incumbent upon directors. Its own organization and functioning. To prepare the financial statements and present them to the general meeting. To prepare any kind of report which the managing body is required to issued by law, whenever the transaction to which the report refers is one which cannot be delegated. To appoint and remove the company’s managing directors and establish the terms and conditions of their contracts. To appoint and remove senior management personnel who report directly to the board or to any of its members, and establish the basic terms and conditions of their contracts, including compensation. To reach decisions with respect to directors’ compensation, within the framework of the bylaws and, where appropriate, of the compensation policy approved by the general meeting. To call the general meeting and draw up the agenda and resolution proposals. To determine the policy with respect to treasury stock shares. Any powers delegated to the board of directors by the general meeting, unless the board has been expressly authorized to sub-delegate them.
Adoption of resolutions by the board	The quorum for a board meeting is the presence, either in person or by proxy, of one-half plus one of the board members.
Majorities for the adoption for resolutions	Generally, by an absolute majority of the directors attending (in person or by proxy). Exceptionally, for permanent delegation of board powers, by the affirmative vote of two-thirds of the board’s members; such delegation is not legally valid until it has been registered at the Commercial Registry.
Liability of directors	Directors must comply with the duty of diligent administration, faithful defense of the corporate interests, loyalty and secrecy. Directors are liable to the company, its shareholders and its creditors for damage caused by acts that are illegal, contrary to the bylaws or carried out in breach of the duties specific to the office. In such cases, all directors are jointly and severally liable. A director can only be released from liability if he/she proves that he/she did not participate in the adoption or execution of the resolution and that he/she was unaware of the existence of the harmful act or, if he/she was aware of it, did everything reasonably possible to mitigate it or at least expressly opposed the resolution giving rise to the harm.
Powers of attorney	In addition to the powers vested in the board of directors, general powers of attorney may be conferred upon any person, whether or not a director, in which case they must be documented in a public deed of power of attorney registered at the Commercial Registry.
Meetings	The board must meet at least once a quarter; that is, four times a year.
Contract with managing director or director assigned executive functions	Where a member of the board of directors is appointed as managing director or assigned executive functions by virtue of any other title, a contract must be entered into between the board member concerned and the company, with such contract having been approved beforehand by the board of directors with the affirmative vote of two thirds of its members. The board member in question must refrain from attending the deliberations and participating in the voting. The contract approved must be attached as an exhibit to the minutes of the meeting. The contract must indicate all items for which compensation may be received for the performance of executive functions, including, where appropriate, potential severance for early removal from such functions and amounts payable by the company in the form of insurance premiums or contributions to savings plans. The board member may not receive any other compensation for the performance of executive functions which is not envisaged in his/her contract.
Compensation	As a general rule, the office of director is not compensated, unless the bylaws establish otherwise, in which case the bylaws must stipulate the compensation system to be applied, determining the compensation item or items payable. These may consist, among others, of the following: a fixed allocation; per diems; a share in profits; variable compensation based on reference parameters or indicators of a general nature; compensation in shares or linked to share performance; severance for removal, provided that the removal is not due to a breach of directorial duties; or contributions to such saving or welfare plans as may be deemed appropriate. Under the Decision of the Directorate-General of Registries and the Notarial Profession (“DGRN”) of June 4, 2020, the bylaws can contain a list of compensation systems so that the board of directors can choose a system in the contract, and the office of director can even be compensated for executive directors and not compensated for deliberative directors. The maximum annual compensation payable to the directors overall must be approved by the general meeting, with such limit remaining in force until its amendment is approved. Unless otherwise determined by the general meeting, the distribution of such compensation among the directors is to be established by agreement among them. The compensation paid is nevertheless required to be reasonable and proportionate taking into consideration the company's importance, its economic situation at any given time, and market standards among comparable companies. It should be geared towards promoting the company’s longterm profitability and sustainability, while incorporating such safeguards as may be necessary to avoid excessive risk-taking and poor results.

4.6.3 Requirements for the adoption of resolutions at shareholders’ and board meetings

The legal or bylaw requirements for the exercise of certain rights and the adoption of resolutions at both shareholders’ and board meetings of S.A.s and S.L.s are as follows:

Corporations		Capital Companies Law	Limited Liability Companies
Article of the Capital Companies Law	Minimum stake required	Minority shareholders’ rights at an S.A. or S.L.	Minimum stake required	Article of the Capital Companies Law
a) Common general aspects:
Art. 203	1%	Right to request the presence of a notary to record the minutes of the shareholders’ meeting.	5%	Art. 203
Art. 168	5%	Right to request the calling of a shareholders’ meeting.	5%	Art. 168
Art. 238.2	5%	Right to oppose a waiver of an action for liability against directors.	5%	Art. 238.2
Art. 239	5%	Right to file an action for liability of directors if such claim has not been filed by the company itself.	5%	Art. 239
Art. 251	1%	Right to contest any resolution adopted by the board of directors.	1%	Art. 251
Art. 265.2	5%	Right to request that the Commercial Registry appoint an auditor.	5%	Art. 265.2
Art. 381	5%	Right to request that the Commercial Court appoint a receiver to monitor the liquidation process.	Not Regulated
Art. 266	5%	Right to request that the Commercial Court revoke the appointment of an auditor.	5%	Art. 266
Art. 197	25%	Right to request the information deemed appropriate for the holding of shareholders’ meetings (which cannot be refused by the directors).	25%	Art. 197
Art. 172	5%	Right to request an addition to the notice calling a shareholders’ meeting in order to include one or more items on the agenda.	Not Regulated
*b) The quorums* of attendance and majorities required to adopt resolutions at shareholders’ and board meetings of corporations are as follows:**
Art. 193.1	25%	Quorum on first call for shareholders’ meetings. No quorum is required on second call. In any event, a simple majority is required for the adoption of resolutions.
Art. 194.1	50%	Quorum on first call for meetings in special circumstances, such as issuance of debentures, increase or reduction of capital, re-registration, merger, spin-off or any other amendment of the bylaws.
Art. 194.2	25%	Quorum on second call for meetings in special circumstances, such as issuance of debentures, increase or reduction of capital, re-registration, merger, spin-off or any other amendment of the bylaws. If shareholders representing less than 50% of the subscribed voting capital are present at such meetings, a 2/3 majority of the capital present or represented is required for the adoption of resolutions.
Art. 248	≥ 50%	Required majority of votes cast by members present or represented for the adoption of resolutions by the board of directors.
Art. 249.3	66%	Required majority of votes cast by members of the board of directors present or represented for the permanent delegation of authority to the Executive Committee or in the managing director.
*c) The quorums* and voting majorities required for the adoption of resolutions at shareholders’ and board meetings of limited liability companies are as follows:**
Art. 198	33%	Quorum for meetings the agenda of which includes resolutions not listed in Article 199.a) or 199.b). In any event, a simple majority of the votes cast is required, provided that it represents least one-third of the votes under the shares into which the capital is divided.
Art. 199.a)	≥ 50%	Required majority of votes for resolutions to increase or reduce capital or to amend the bylaws in any way.
Art. 199.b)	≥ 66%	Required majority of votes for resolutions such as re-registration, merger, spin-off, removal of members, etc.
Art. 245.1		Majority of votes required in the bylaws.
Art. 249.3	≥ 66%	Required majority of votes cast by members of the board of directors present or represented for the delegation of authority to the Executive Committee or the managing director.

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