C an any of the members of a board of directors manage the company?
This is a key matter to any foreign company carrying out business in Spain
One commonly overlooked aspect in a company with a board of directors concluding an agreement in Spain is understanding the faculties of the board members to act on behalf of the company. In this article, we discuss this topic in further detail.
Every Spanish company needs having at least one director, and following the Spanish Corporate Enterprises LawIn its article 210 (“LSC”), a company can be managed in the following ways:
- One sole director
- Several directors acting jointly or jointly and severally
- A board of directors
The first two options are simplest ways of decision making as the power resides in one or more individuals, whereas in the third option the power resides in a body acting independently. In this article, we will focus on this particular subject, the board of directors, and the faculties of their members to represent and take decisions on behalf of the company.
The board of directors in a Spanish company must be formed by at least three directors who will be the managers and representatives of the company, but, does this mean that any of the directors of the board is entitled to represent the company, for example entering into a contract (signing a lease agreement for a store, hiring a company employee, setting up a subsidiary company, etc.)?
The answer is no, as per the LSC board directors are non-executive.
This means that when making decisions the board of directors acts as an independent body and decisions must be taken in a board meeting which must have been duly called, in which a vote must have passed and a minute meeting signed. This, in our previous examples, would mean that in case of a company having to sign – for example – a lease agreement for a store the process could become rather time and resources consuming.
There are several ways to fix:
- Appointing a managing director or CEO who will act as the executive director appointed by the board members with faculties to manage and represent the company in almost all agreements and transactions.
- Appointing one or several proxies to carry out transactions on behalf of the company normally in a limited way, i.e. hiring employees up to a certain salary, bank transactions up to a certain amount of money, etc.
All this becomes particularly relevant with foreign companies carrying out transactions in Spain as they must adapt to the requirements set out by the LSC.
We have witnessed foreign company carrying out business in Spain which has encountered that they are unable to complete an agreement due to the fact that their representative personBoard member has not sufficient powers under the Spanish regulation.
This, which can be easily fixed with some early advance, can become a huge setback when the pressure of concluding a business or a deadline is pushing.
It is therefore very recommendable, in case of a foreign entity with a board of directors in place entering into an agreement or concluding business in Spain, to have the advice of a corporate lawyer to oversee that the formal aspects of the business are in line with the local regulation.
Our English speaking corporate lawyers are available for a consultation, click on our contact link for further information.