Corporate Governance and Director Duties

Administrative Body

• Structure:
  • Sole director
  • Board of directors (for listed companies, a management board composed of several members is mandatory)

Director's Duties

• General Responsibility: Directors are solely responsible for managing the company and ensuring operations achieve objectives.
• Competencies: Directors can approve resolutions outside the shareholders' meeting's purview.
• Specific Powers and Duties:
  • General power to represent the company
  • Power to call shareholders' meetings and set agendas
  • Duty to implement shareholders' meeting resolutions
  • Responsibility for company bookkeeping and accounting records
  • Duty to adopt organizational and management models to prevent crimes
  • Duty to prevent actions undermining the company's interest

Relationship Between Shareholders' Meeting and Directors

• Limited Competence: Shareholders' meetings have limited management competence, whereas directors have general decision-making powers.
• Independent Powers: Once appointed, directors have independent decision-making powers not reliant on shareholder approval. Authorizations from shareholders' meetings only apply to specific operations, not general management.

Appointment of Directors

• Initial Appointment: First directors are often appointed through incorporating documents.
• Subsequent Appointment: Subsequent directors are typically appointed through ordinary shareholders' meetings.
• Special Rules: Bylaws can specify additional rules for director appointments.
• Listed Companies: In listed companies, directors are typically appointed using a slate voting mechanism.
• Shareholders' Participation: Holders of participating equity instruments may also be appointed to the board. Additionally, the state or other public authorities may appoint directors if they hold shares in the company.

Number of Directors

• Determination: The number of directors is determined by bylaws, which also specify minimum and maximum numbers.

Causes of Ineligibility

• Legal Incapacity: Legally incapacitated individuals cannot be directors.
• Bankruptcy: Bankrupt individuals cannot be directors.
• Public Office Disqualification: Individuals disqualified from public office cannot be directors.
• Other Incompatibilities: Special laws might establish further incompatibilities. If a cause of ineligibility arises post-appointment, the director loses the position.

Duration of Office

• Standard Term: Directors typically serve three financial years.
• Reappointment: Directors can be reappointed, unless the company's founding documents state otherwise.

Termination of Office

• Shareholders' Resolution: A shareholder's resolution can remove a director, even without specific cause, but can be subject to compensation requirements.
• Resignation: Directors can resign from their positions.
• Cause of Ineligibility: The emergence of a valid cause of ineligibility can terminate a director's office.
• Death: A director's death terminates the position.

Replacement Mechanism

• Early Termination: If a director leaves before the end of their official term, the replacement must be appointed and accept the position for the termination to occur. Resignation of a director will take effect immediately if a majority of the other existing directors remain in office.
• Delayed Termination: When terminating a director's term for non-replaceability and no immediate replacement, there is a set protocol established in law to fill the position within a defined timeframe to prevent complications.

Remuneration

• Bylaws or Shareholders' Meeting: Remuneration is determined by the bylaws or a shareholders' meeting.
• Additional Duties: Specific director duties may warrant additional remuneration, which is part of the total compensation payable to the director, that may have to be reported annually in the case of listed companies.

Director Prohibitions

• Competing Interests: Directors cannot be shareholders or partners with unlimited liability in competing companies, nor can they engage in competing business activities.
• Concurrent Directorships: Directors cannot hold concurrent directorships or managerial positions in competing companies. They cannot take advantage of insider information in a related company transaction,
• Insider Trading: In listed companies, directors are prohibited from using insider information, and a breach can lead to removal from office and financial penalties.

How Directors Work

• Sole Director: A sole director carries out all administrative functions independently.
• Board of Directors: A board of directors operates under a chair, with joint decision-making via majority vote during formal board meetings. Established quorum and procedural requirements for resolution validity are necessary.

Director's Interests

• Disclosure Obligations: Directors must disclose any personal interests in transactions to the board and shareholders, to ensure fair dealings and avoid conflict of interest.

Procedural Requirements

• Reporting and Motivation: Directors must inform other directors and the board of statutory auditors, justifying all their actions, particularly if the transaction benefits the company. A sole director must inform both the board of statutory auditors and the shareholders' meeting as soon as possible.

Contested Resolutions

• Conflict of Interest: The company can challenge resolutions where a director with a conflict of interest voted, only if the vote was decisive and transparency, abstention, and justification criteria were violated.
• Legal Recourse: If the above happens, the company can sue if these transactions are determined to be harmful to the company, and the terms of the bylaws have been violated. Contracts with conflicts of interest may be voidable upon the request of the company.

Powers of Representation

• External Actions: The power of representation deals with external company activity, where directors act in the company's name for third parties, distinct from managing company internal operations.
• Bylaws/Appointments: Bylaws or appointment resolutions must name directors with representation powers. Multiple directors with such power must define if they act jointly or separately.

Limits on Representation Power

• Invalid Appointment: If an appointment resolution is invalid, it doesn't bind third parties, unless said parties have knowledge of this issue.
• Bylaws Restrictions: Bylaws or resolution-specified limits on representation powers can't bind third parties unless these parties act intentionally to the company's detriment with knowledge.

Director Liability

• Company Liability: Directors are liable to the company for failing to fulfil their duties or obligations with professional diligence.
• Breach of Duty: Directors' negative economic performance is not a basis for liability but issues with their due diligence during business operations will be subject to legal review.
• Creditor Liability: Directors can be liable to creditors if the company's assets are insufficient to pay debts.
• Shareholder/Third-Party Liability: Directors can be held liable to shareholders and third parties if they act negligently or intentionally, directly harming their assets. The damaged parties need to prove a direct loss.
• Time Limit for Liability Actions (Prescriptions): Actions for director liability are limited by specific timeframes (often five years from the relevant event occurrence).

Who Can Initiate Director Liability Actions

• Shareholders' Meeting: The shareholders' meeting can initiate a liability action.
• Board of Statutory Auditors: The board of statutory auditors can initiate a liability action with the required quorum vote (⅔).
• Insolvency Procedures: Insolvency practitioners, as part of insolvency procedures, can initiate legal action.
• Minority Shareholders: A minority of shareholders (depending on company type) can initiate a liability action.

Renunciation of Liability/Settlements

• Shareholder Approval: Liability actions or settlements from shareholders' meetings require the approval of a specified percentage of the shareholder base.

Rules for Taking Liability Action (Company's Creditors)

• Action Time Limit: Liability actions by creditors are capped at a specific timeframe (often 5 years).
• Knowledge Requirement: If asset insufficiency is not obvious, the creditor needs to demonstrate they reasonably should have known.
• Company's Liability Action: The company may be subject to liability action separate from a creditor action.

Explore the essential roles and responsibilities of directors within corporate governance. This quiz covers the structure of administrative bodies, the competencies of directors, and their relationship with shareholders' meetings. Test your knowledge on the management duties and the legal framework guiding companies.