The Managing Director's Contract in a Company

The members of a board of directors may hold the following roles:

• Board members: (Chairperson, ordinary member, secretary) and, in addition,
• Managing Directors: a board member appointed by the remaining directors to whom certain powers of the board of directors are delegated.
• Authorised Directors: a board member holding a general or special power of attorney.

Written by Maria Teresa Garasa

Corporate lawyer

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The recent ruling of the Supreme Court, Civil Chamber, No. 215/2022, dated 21 March 2022, clarifies how and in what capacity a board member may represent a company, by interpreting Article 249 of the Spanish Companies Act (Ley de Sociedades de Capital).

The company granted general powers of attorney to all members of the board of directors of a public limited company.

• The Managing Director (Art. 249.3 of the Spanish Companies Act) may represent the company with full autonomy vis-à-vis the board of directors, because the Board has delegated — through that appointment, on a permanent basis — a sphere of decision-making that is organic in nature rather than merely functional, without prejudice to the Board retaining its authority to supervise and issue instructions.
  
  This delegation of executive functions to a Managing Director requires a formal contract between the company and the Managing Director, approved by a two-thirds majority of board members, with the abstention of the director concerned. That contract may set out the scope, limits and modalities of the delegation, the Managing Director's remuneration, insurance premiums or contributions to savings schemes, and potentially also any compensation payable upon early termination of their role.
  
  The content of the contract between the company and the Managing Director is therefore of great importance, as it defines the scope of functions and "sets the ground rules". If you would like our assistance in drafting it, please get in touch:
  
• A director granted general powers of attorney streamlines the company's dealings with third parties, avoiding the impracticality of requiring all members of the board of directors to be present at every transaction with external parties.
  
  This power of attorney enables the authorised representative to carry out, vis-à-vis third parties, the decisions previously taken by the board of directors, binding the company through their actions. However, the representative's authority is limited strictly to decisions already adopted by the board of directors — that is, they must act in accordance with prior resolutions passed by the Board. The representative therefore has no independent authority and cannot make decisions of their own accord.

The scope of powers granted to authorised representatives under a commercial power of attorney executed before a notary must be carefully calibrated — neither too broad nor unduly restrictive — so as to properly serve the company's interests.

In the case at hand, the Supreme Court held that general powers of attorney granted to all board members confer representative authority, not decision-making authority. Were it otherwise, in practice each director would be able to take any decision independently, without the need for a collective resolution. Consequently, directors holding a general power of attorney are not required to formalise an individual contract between the company and the director — as provided, for executive directors, under Article 249.3 of the Spanish Companies Act — since that requirement applies exclusively to executive directors (Consejeros Delegados).

what is the secretary of the board of directors

• Organising board meetings and preparing the relevant documentation.
• Recording the resolutions and decisions adopted by the members of the Board and the General Meeting during meetings.
• Legal advice.
• Signing every page of the company's annual accounts (commercial and criminal liability).
• Signing the annual certificates for each board member confirming whether or not a conflict of interest exists between the directors and the company (commercial and criminal liability).
• Signing all certificates of resolutions adopted by the General Shareholders' Meeting and the Board of Directors (commercial and criminal liability).
• Ability to attend in person before the notary for the execution of public deeds formalising resolutions adopted by the General Shareholders' Meeting and the Board of Directors, thereby avoiding the need for directors to attend themselves.

WHO IS THE LEGAL ADVISER IN A COMPANY:

Law 39/75 and its implementing regulation Royal Decree 2288/1977 establish that the appointment of a legal adviser is mandatory in companies where:

• their share capital is equal to or exceeds €300,000.
• their ordinary business turnover reaches €600,000.
• their permanent workforce exceeds 50 employees.

RESPONSIBILITIES OF THE LEGAL ADVISER IN A COMPANY:

• Ensuring the legality of the decisions taken by the governing body.
• The failure to appoint a legal adviser carries significant negative consequences, as it is taken into account in any liability proceedings brought against directors, with the judge determining the effects of the absence of such an appointment.
• In the area of criminal compliance, the legal adviser can certify that the company is applying the law correctly. As a result, in the event of proceedings, their involvement is essential to demonstrate that the company has implemented the generally accepted best practices for preventing and reducing the risk of criminal offences.