Corporate Governance: General Meetings and Boards
Corporate Governance in Capitalist Companies
Case 2B focuses on the governing bodies of capitalist companies: the General Meeting and the Board of Directors.
The General Meeting: Shareholder Decision-Making
The General Meeting is the body where partners or shareholders make the primary decisions of the company. In a Joint Stock Company, it is the meeting of shareholders. In a Limited Liability Company, it is the meeting of stakeholders or partners.
Types of General Meetings
- Ordinary General Meeting: This is the regular meeting and must be held within the first six months of each financial year. Within this category, there is the First General Meeting (the company’s inaugural ordinary meeting) and the Annual General Meeting (the ordinary meeting held every year).
- Extraordinary General Meeting: This is called for special matters outside the scope of the ordinary meeting.
- Universal General Meeting: A meeting where all partners or shareholders are present or represented.
Location, Notice, and the Agenda
The General Meeting is normally held in the municipal district of the registered office, unless the bylaws state otherwise. Before the meeting, the company must send a notice, which is the formal call of the meeting. The notice must inform partners or shareholders in advance and must include the company name, place, date, hour, and agenda. The agenda is important because it tells partners what will be discussed and voted on.
Quorum and Voting Requirements
For the meeting to be valid, there must be a quorum. Quorum refers to the minimum capital with voting rights that must be present or represented. In the first call, the general rule is 25% of the capital with voting rights, although the bylaws may require a higher quorum. If the first call fails, the second call typically has a lower quorum.
Key Competencies and Decision Processes
The agenda points are the topics to be discussed and voted on. Article 160 includes the most important matters that must be decided by the General Meeting, such as:
- Approval of annual accounts and distribution of profits.
- Appointment or dismissal of directors.
- Amendment of bylaws and capital increases or reductions.
- Mergers, dissolution, and approval of the final liquidation balance sheet.
The deliberation and decision process means that partners first discuss the agenda points and then vote. Some decisions require a simple majority (more votes in favor than against), while more important decisions require a qualified majority. Once a valid decision is adopted, all partners or shareholders are bound by it, including those who voted against it or did not attend.
Shareholder Rights and Minutes
Shareholders have basic rights: the right to attend, the right to be informed, the right to vote (if their shares have voting rights), and the right to receive profits. The decisions adopted in the meeting are recorded in the minutes. While bylaws are the general internal rules of the company, minutes are the written record of one specific meeting.
The Board of Directors: Management and Representation
The Board of Directors is the body that manages and represents the company. It must have at least three members, and in a Limited Liability Company, it cannot have more than 12 members. Directors are appointed by the General Meeting. They can be individuals or corporate bodies, and they do not need to be shareholders unless the bylaws require it.
Powers, Duties, and Liability of Directors
Directors have representation power, meaning they act on behalf of the company. They must attend the General Meeting. Their remuneration is unpaid unless the bylaws establish otherwise. Directors have specific duties:
- They must act with due diligence and loyalty.
- They must avoid conflicts of interest.
- They must maintain confidentiality.
If directors cause damage through acts or omissions contrary to the law or bylaws, they may be held liable.