- 1Spain: An attractive country for investment
- 2Setting up a business in Spain
- 3 Tax System
- 4 Investment aid and incentives in Spain
- 5 Labor and social security regulations
- 6 Intellectual property law
- 7Legal framework and tax implications of e-commerce in Spain
- AI Annex I Company and Commercial Law
- AIIAnnex II The Spanish financial system
- AIIIAnnex IIIAccounting and audit issues
- Applicable Legislation
- Forms of Business Enterprise
- The Treatment of Liability at the types of Business Enterprises
- Main Characteristics of Corporations and Limited Liability Companies
- European Public Limited-Liability Company (S.E.)
- New Limited Liability Company
- Professional Services Firm (S.P.)
- Sole-Shareholder Companies
- Representative Office
4. Main 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:
|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.|
|Special: Any meeting of the shareholders other than an ordinary meeting is a special shareholders’ meeting. A special shareholders’ meeting may be called:
|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 corporations must be domiciled 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.|
|Majorities for the adoption of resolutions||S.L.||
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.
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:
|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||
|Liability of directors||Directors are 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.
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.|