Dualistic vs. Monistic Systems

• There are two systems for organizing the management body of a company: the German dualistic system; and the monistic system, typical of most legal systems.

Dualistic Systems

• Feature two bodies: a supervisory board and a management board.
• The supervisory board is composed of independent individuals, appointed by shareholders (and workers in large German companies), and handles governance.
• The supervisory board appoints and dismisses company executives who form the management board.
• The management board manages and represents the company, with its chair held by the top executive.

Monistic Systems

• Unify all functions into a single body, usually a board of directors, without distinguishing between supervisory and management boards.
• The board includes representatives of the capital and senior executives.
• Company governance involves both strategic functions and day-to-day management.
• Typical governance tasks: appointing/dismissing senior executives, approving strategic plans, and evaluating management/financial oversight.
• Executives manage company assets and make day-to-day decisions according to strategic plans.
• The chief executive often chairs the board, creating two issues: governance includes evaluating executives' actions, making the board both judge and party, and the board lacks capacity/expertise for day-to-day operations
• The audit committee and a nominations and remuneration committee are commonly created within the board to address these issues, especially in Spanish listed companies, with the audit committee being mandatory.
• Day-to-day operations are managed via delegation, either to a managing director, an executive committee, or the top executive with delegated powers.

Spanish Organizational Method

• The Spanish Companies Act establishes two bodies: a General Meeting and a management body.
• The General Meeting decides on major issues (mergers, bylaws), while the management body handles daily operations.
• The Spanish Companies Act favors the monistic system; dualistic Germanic structures are disallowed, except for European public limited companies.
• The law doesn't mandate a board of directors, and management can be entrusted to one or more directors.

Directors - Appointment, Powers, and Acceptance

• The structure of a public limited company's management body must adhere that which is defined by the bylaws, using a fixed set of options: i) sole director; ii) multiple directors acting individually; iii) two joint administrators; iv) a board of directors (at least three members).
• Public and limited liability companies can utilize any of the options via the bylaws, allowing the General Meeting to alternate between them.
• The General Meeting makes decisions via ordinary majority and must be registered with the Commercial Registry.
• There are various methods in which the power of representation is assigned to directors depending on the structure of the management body.
• a) Sole director: power is attributed individually.
• b) Joint & several directors: power is attributed to each director individually
• Some restrictions to the powers of joint directors may have internal effects only.
• c) Joint directors: power is jointly held and must never be more than two.
• d) Board of directors: the power of representation lies with the board, which will act collegially, and designate an individual to bind the public limited company.
• A public limited company with more than two joint directors must form a board.
• The board delegates the power of representation to an executive committee or one or more directors due to the inefficiency in approving decisions via the Board of Directors.
• Executive chairman or managing director roles are common due to granted powers by the Board.
• Management bodies must handle governance, management, and representation.
• Spanish law emphasizes management and representation.
• Governance duties are implicitly derived from diligence and loyalty as established in the Spanish Companies Act.
• The representation of a public limited company is a legal responsibility entrusted to the directors.
• The representation is an exclusive attribution from the Spanish Companies Act in that it is not granted via bylaws or any other voluntary or contractual act,
• Only the management body is entitled to represent the public limited company, but the General Meeting of Shareholders cannot appoint attorneys, even within the scope of its own powers..

Corporate Purpose

• It extends to essential acts (granting loans) that indirectly contribute to corporate goals.
• Acts outside the corporate purpose require General Meeting approval.
• The General Meeting can instruct the management body; prior approval may be needed for major transactions.
• Directors are subject to consequences for not obliging with limitations.
• Initial directors are elected by founders; subsequent directors are elected by the General Meeting of Shareholders.
• Vacancies on the board can be filled through co-option.
• The General Meeting of Shareholders determines the number of joint or board directors if not specified in the articles of association.
• Director appointment requires acceptance, and the acceptance date cannot precede the appointment date, registered within 10 days.
• Effects of the appointment and acceptance are subject to registration.

Directors - Capacity and Prohibitions

• Any natural or legal person can generally be a director of a public limited company, however, if the director is a legal person, they must designate a natural person to use their powers.
• The appointment of a director must be registered in the Commercial Registry for it to be known by third parties.
• It is not necessary to be a shareholder to be appointed as a director of a public limited company., unless the articles of association specify otherwise.
• People who are incapacitated (minors, persons disqualified under the Insolvency Act) or those who can't engage in commerce or are legally incompatible cannot hold the position of director.
• Those convicted of crimes, civil servants, judges, etc. cannot hold the position of director.
• Those who are directors of a competing company or those with interests opposed to those of the public limited company, must resign upon request from any shareholder and by decision of the General Meeting.
• Special regulations govern the capacity and conditions required to be a director of public limited companies engaged in activities subject to supervision (e.g., conditions of good repute, etc.).

Directors - Duration and Termination of the Position

• The position is temporary and must be specified in the articles of association, which cannot exceed six years.

• However, they may be re-elected one or more times (even indefinitely), for periods of the same maximum duration.

• Once the period for which they were appointed has expired without renewal, their appointment becomes void.

• The Regulations establish that when the periods for exercising the director's position are set in years, these will be counted from one General Meeting of Shareholders to the next (not according to calendar years).

• The director can be freely dismissed at any time by the General Meeting of Shareholders.

• Their dismissal does not need to be based on just cause nor does it require compensation to the dismissed director and must be agreed at any time by the General Meeting without the need for it to be listed on the agenda.

• Articles of association cannot impose any conditions regarding the dismissal of directors, or require a quorum for attendance or enhanced majorities for the General Meeting to validly agree on the dismissal of directors.

• The revocation of the directors by the General Meeting is valid from the moment the corresponding resolution is adopted and will only have effects vis-à-vis third parties once it is registered in the Commercial Registry.

• In addition to being revoked by the General Meeting, directors may cease their duties due to: voluntary resignation, expiration of the term of their mandate, death, a decision by the General Meeting to pursue a social responsibility action, by final court resolution.

Directors - Remuneration

• Shall be established in the articles of association and the position is unpaid, unless otherwise stated.

• In contrast, in listed companies, the position of director is remunerated.

• The remuneration is not subject to limitations and can take any form.

• The Companies Act only establishes restrictions for: Cases where the remuneration of directors consists of a participation in profits, and/or Cases where the remuneration consists of the granting of shares, options on shares, or is linked to the value of the shares.

• The profit participation allocated to directors can only be deducted from the net profits (i.e., those resulting from the profit and loss account approved by the General Meeting of Shareholders/allocating statutory reserves, and after granting shareholders a dividend of at least 4% of the paid-up capital.

• If the articles of association specify a maximum percentage, the General Meeting must set the applicable percentage within this maximum.

• The type of remuneration must be explicitly provided for in the articles of association, and its application will require a resolution from the General Meeting of Shareholders, specifying its value and duration.

Directors - Fiduciary duties

• Directors must act with diligence, business discretion, and loyalty.
• Diligence: Directors must diligently inform themselves about the company's progress, dedicate the necessary time, supervise the company's activity, and make reasonable decisions that are not contrary to either the law or the articles of association.
• Business discretion: Directors must act with diligence, good faith, no personal interest, and sufficient information.
• Loyalty: Directors must act loyally in the best interest of the company.

Loyalty duty is specified in:

• Secrecy: Directors must maintain confidentiality about information that is not publicly available and that they have received in their capacity as directors. Enforced through their term of office and even after they leave the position.
• Conflict of interest: Refrain from participating in the deliberation and voting on decisions where they have a conflict of interest and should avoid situations where their personal interests conflict with those of the company.
• Directors are required to disclose any situation where their personal interest conflicts with that of the company.
• Use of position for personal gain: The law prohibits directors from: using their position to carry out operations for their own benefit, taking advantage of business opportunities that they learned about through the company, competing with the company, and/or accepting gifts from third parties, except for those of mere courtesy.
• Independence and freedom of judgment: Directors must carry out their duties with freedom of judgment from binding instructions from third parties.

Compliance from the Company

• The Companies Act reinforces the duty of loyalty by making its provisions mandatory and declaring any provisions that violate or limit it as ineffective.
• A singular waiver for a specific operation may, in exceptional cases, be authorized by the General Meeting or the Board of Directors providing it does not affect the company's assets, and is conducted under market conditions and with full transparency.
• Regarding the approval of related-party transactions, the conflicted director will not be required to abstain, but, the burder of proof will lie with the conflicted director in the event of a legal challenge,
• However, the Companies Act takes a cautious approach regarding waiving the non-compete obligation and therefore requires the transaction to be authorized by the General Meeting with a separate resolution.
• It must be ensured that no harm is caused to the company, and if harm exists, it must be compensated by the expected benefits, else, the General Meeting will decide on the dismissal of any director who competes with the company when the risk of damage is considered significant.

Social and individual action for liability

• The Companies Act establishes that directors are responsible for damages caused to the company, shareholders, and creditors if the directors fail to comply with any of the duties imposed by law, and there has been fraud or negligence.
• It is presumed that negligence occurred when act is contrary to the law or the articles of association, unless the contrary is proven.
• Applies to both de jure and de facto directors, and those who give instructions to the de jure directors,
• Responsibility is joint and several among directors who opposed the harmful decision or were unaware of its existence and there is no quantitative limitation, even if the General Meeting authorized or ratified their actions.
• The General Meeting is always exempt from responsibility.
• The regime is of public order, meaning any agreement that alters or modifies it is null and void, and Furthermore, it will have no effect if a specific decision of the board of directors has been validated or ratified by the General Meeting of Shareholders.
• The Companies Act provides for two types of action: individual action and social action.
• Individual action: Any shareholder or creditor of the public limited company who has suffered damages can demand compensation for the damages directly caused to them.
• Social/corporate action: Its (not its shareholders or third parties) purpose is the indemnification of the public limited company itself for the damages that may have been caused by the directors, and requires prior approval from the General Meeting.
• The key difference between individual and social/corporate lies in who suffers the damage that the directors have caused to, and If the damage affects the company's assets, the appropriate action is the social/corporate action, even if it can be argued that indirectly the damage also affects shareholders individually or third parties.
• The articles of association cannot establish enhanced majorities for adopting the agreement to initiate the corporate liability action.
• The annual accounts approval will not prevent the exercise of the liability action, nor will it imply a waiver of any action already initiated, and The General Meeting can only waive the exercise of the action if shareholders representing at least 5% of the share capital do not oppose the decision.
• Action initiation or settlement will result in the automatic dismissal of the directors by law.
• Shareholders may request the call of the General Meeting to initiate the corporate liability action.
• The shareholders may initiate a corporate liability action without needing to submit the decision to the General Meeting in the case of a breach of the duty of loyalty.

Creditors of the company

• They can initiate the corporate liability action when it has not been exercised by the company or its shareholders, and the company's assets are insufficient to satisfy their claims.
• The corporate or individual liability action action will prescribe after four years from when it could have been initiated.
• The Companies Act establishes other types of violations and penalties that may be imposed on directors, and other cases of liability (company debts when directors fail to proceed with the dissolution and liquidation of the company).

Board of Directors - Appointment: proportional representation system and co-optation

• This is the most common form of management for a public limited company (sociedad anónima).
• The Board of Directors lies in the fact that it is an organ in which shareholders, executives, and independent experts can participate.
• Delegation of powers to one or more individuals one or more directors can be granted very broad representation powers, thereby streamlining the functioning of the company.
• A Board of Directors is mandatory whenever there are more than two directors with joint powers.
• The shares grouped can vote to form an amount of capital equal to or greater than the quotient to appoint a number of directors.
• Its appointment is subject to vacancies that have expired on the Board of Directors.
• Its grouped shares cannot vote in the election of the remaining directors.
• This helps encourage the inclusion of minorities directors on the Board, and Reducing the number of directors or abolishing the board altogether bypasses joint or joint-and-several directors.
• Co-option: Allows the Board of Directors (not the General Meeting) to elect a director temporarily to fill vacancies until the next General Meeting where only shareholders can be elected, except in the case of listed companies.
• In cases where minorities have exercised their right to elect a representative through the proportional representation system, the co-option exercised cannot violate the rights of minorities.

Board of Directors - Structure and internal regime: approval and challenge of resolutions

• The articles of association govern the structure and internal regime of the Board of Directors, except for the specific provisions in the articles of association where the Board of Directors can establish the regulations it deems appropriate.
• The Board of Directors must appoint a president and a secretary from among its members, and a vice president and vice secretaries as well.
• The Board of Directors must be called by the president or vice president and must meet at least once a quarter.
• Directors representing one-third of the board can also call a meeting if the president fails to do so.
• The quorum for the Board of Directors is a majority of its members.
• Decisions are approved by an absolute majority of the directors present at the meeting and may be made in writing without holding a meeting, provided that no director objects and are recorded in the minutes (acta), drafted by the secretary with the president's approval to be approved by the board.
• The certifications of the agreements are raised into a public status, for the Commercial Registry.
• Agreements that are void can be challenged by the remaining directors or by shareholders representing more than 1% of the share capital.
• Challenging requires a filing within thirty days from the approval of the agreement, If initiated by the shareholders, the thirty-day period to challenge begins when they become aware of the agreement, provided that no more than one year has passed since its approval.

Board of Directors - Delegation of powers: executive and other committees

• Boards often delegate powers to individuals (president, managing director) or committees.
• For delegation validity requires the favourable vote of 2/3 of the board members and the registration of the delegation agreement in the Commercial Registry while revocation only requires the vote of the majority of those present.
• Typical delegatable powers include those that are non-delegable, the preparation of the annual accounts, powers granted by the General Meeting to the board, the supervision of committees, the authorization or waiver of loyalty obligations, the call and preparation of the agenda for the General Meeting, and the appointment and dismissal of managing or executive directors/ senior executives directly dependent on the board.
• Advisory committees assist the board with specific functions, with functions that are usually informative and consultative, and the audit committee and the nominations and remuneration committee are mandatory.
• The board can grant powers of attorney to others that are limited by the defined scope, rather than delegation to one or more directors, with the liability regime differing.
• A legal advisor is in charge of giving legal advise, and verifying that agreements are documented and agreed in accordance with the law; to maintain Companies with legal capital must be in excess of 50 million pesetas, exceeding 100 million in turnover.

Account audit - introduction

• The auditors must provide a true reflection of company assets, finical position and results.
• Auditing registration must be authorised by the Accounting and Aditing Act.
• Every Company must haves its annual accounts audited.
• Companies are not required to perform an audit to two consecutive financial years and must two of the following crieria: The total asstest value should not exceed the two minlion euro, Annual turnover in excess to five million or having an average annual value of employees.
• Auditors must be appointed by the General Meeting of Shareholders before the end of the financial year to be audited.
• The audit report consists of verification and provision of the annual accounts accuracy regarding the accounting finical report while key components of the report could be Unqualified, Qualified, Adverse, Disclaimer,

4 Management body in a limited liability company

• The management body in a limited liability company can take several forms: Sole director, joint director, board of directors.
• Their can be more than two joint and several directors with the need to form a board of directory,
• But when forming a board of directory, the members need to be a minimum of three and a maximum of twelve members,.
• They also need to delegate to an executive committee and to one or Managing Director.
• The responsibility lies with the General Meeting of Shareholders.
• The appointment by co-operation, however, substitute Admistrators is appointment can't be denied.
• Directors in a limited liability company can be made for an indefinite period while the same in a Public limited can be be appointed for over six years.
• Directors can be be paid in public, while The bylaws state Otherwise (as a form to the General Meeting of Shareholders.)
• The bylaws state that if the public Limited is high for Shareholders.