Corporate Governance: Board Roles and Responsibilities
**Corporate Governance**
The forms the board can take:
- Sole Administrator
- Several administrators jointly and severally: Any of the administrators can do everything. Each can develop/execute any power of the board of directors.
- Several persons acting jointly: Shall act for at least two.
- Board: A collegial body acting for the meeting of all members. Changes in the board should be recorded in the commercial register.
Administrators
Regarding the ability to be an administrator, unless the bylaws say otherwise, they need not be a shareholder. Administrators can be either natural or legal persons.
Prohibitions:
The following are prohibited from being administrators: unemancipated minors, legally incompetent persons, disabled persons under bankruptcy law, those who have been convicted on freedom, collective security, equity, justice or any misrepresentation, and subjects that have prohibited the exercise of trade (Articles 13 and 14).
An administrator who is in any of the prohibitions which we have indicated should be removed from office at the request of any shareholder (Article 34).
The dismissal of managers is a competition of the board and may be exercised at any time without explanation, without having to rely on just cause. Administrators will be dismissed at the request of any shareholder if they have interests opposed to those of society (Article 234). An administrator can be dismissed if they are engaged in paid employment or self-employment in another activity. Other reasons for dismissal include the death of the administrator, the opening of a settlement because the board disappears and is replaced by liquidators, or the expiration of their term.
Management and Representation of the Company
Article 209. The powers of the board are the management and representation of society. Within these two competencies, a complex set of functions is brought together. These functions really encompass all the tasks necessary for the development of social order, i.e., the daily operations of enterprise development. Within this range of management functions, differences can be seen depending on the area in which they are projected:
- From the point of view of external relations of the company, managers hold the exclusive representation of it. Thus, the society relates to others only through their managers (not across the board). They are the ones who will sign contracts on behalf of society and are to represent them in court and out of it.
- From a domestic standpoint and in relation to the company itself, the performance of managers is equally important. They are responsible for preparing the annual accounts, must ensure the proper conduct of accounting and tax obligations, should convene general meetings where appropriate, etc.
- From the point of view of corporate purpose and its own business strategy, their relevance is unquestionable, as they are the ones who usually raise the company’s business strategy (sales policy, marketing strategy, etc.).
- From the point of view of remuneration of directors (Article 217), the position of director of the society is a free office unless the statutes provide otherwise.
In most companies, especially large ones, managers are paid. However, it is not uncommon in family-owned limited liability companies (SL) or small businesses that no remuneration is fixed for administrators.
The remuneration may consist of a share in profits. When the pay is not profit sharing, the annual general meeting shall specify the amount of the payment.
Duties and Responsibilities of the Directors
Articles 225 and 226 impose a fee for specialized behavior, i.e., directors are subject to professional care given that they require knowledge of the work performed. This is what Article 225 calls the diligence of a businessman. Within the duty of care, the requirement to inquire diligently about the progress of society takes on special significance.
With the latest legislative reforms, the duty to keep abreast of the progress of the society has increased so that it appears that the law does not allow the figure of the so-called “sleeping director.” It will be difficult for a manager to avoid their responsibility by claiming that they were not aware or unaware of the problem at hand. Along with this duty is a duty of loyalty and fidelity, meaning that the administrator is subject to the defense of the interests of society even above self-interest.
On the responsibility of the administrator (Articles 233-241):
- Origin of responsibility: Administrators are held responsible for acts or omissions contrary to law or the statute, or those made without due diligence, provided that such acts or omissions caused damage to the company or creditors.
- It is a joint responsibility of all members of the board, except for those not involved in the offending act. Despite the solidarity, an administrator can avoid liability if they prove that they were unaware and not involved in the fault, and also demonstrate that if they knew, they did everything possible to remove the damage or at least oppose the wrongful act.
- Liability is not excluded if the prejudicial act or resolution is adopted or ratified by the general meeting.
- Ways of holding this responsibility (legitimacy to demand accountability): Action of liability: The company is accusing, and the defendants are the directors. If the board approves the exercise of social action, the managers are dismissed. There is subsidiary standing in favor of members representing at least 5% of the capital to bring the action if the company, having agreed, does not interpose its filing or the board denies the exercise of stock.
Social action: Compensation for damage caused to society by society.
Responsible individual action: Used in cases in which the action of the managers damages the property of the partners or third parties. This action is brought by the partner or third party and seeks compensation for them, not for society.
Appeal of Resolutions
All members are subject to the resolutions of the board. These agreements have to be consistent; otherwise, the law could be challenged (Article 159.2).
Agreements that can be challenged:
- Resolutions of the Board which are contrary to law or the statute, or which adversely affect the interests of society.
- Agreements against the law are void.
- Voidable agreements: All others, therefore, are contrary to the statutes or harmful to society.
To challenge void agreements, there is a one-year limit. For voidable agreements, the limit is 40 days.
Void agreements may be challenged by all members, administrators, and any third party who proves a legitimate interest.
Voidable agreements may be challenged by partners who attended the meeting and registered their opposition to the agreement, non-attendees, partners who have been deprived of the right to vote, and ultimately, administrators.
- A social agreement that has been validly rescinded or replaced by another social arrangement cannot be challenged.
- In judicial proceedings, whenever possible and if requested by the company, the judge will grant a reasonable time to remove the cause giving rise to the challenge of the agreement.