The Essential Corporate Law in Spain (2)

Corporate Governance: Classes: Shareholders Meetings

Decisions reserved to the Shareholders (160 LSC):

• Approval of financial statements and distribution of profits and Approval/Censure of Management (Art. 160).
• Appointing and Removal of Directors (Art. 209- 252), Auditors (Art.264), Liquidators (Art. 376-382).
• Changing the By-Laws: (Art. 285-345)
• Winding-Up or Dissolution (Art. 360-370)
• Approval of the liquidating balance sheet
• Approval legal merger, spin-off, disposals of existing fixed assets
• Other matters determined by the By-Laws or the LSC

The board members must meet a minimum of once a year (Annual General Meeting -AGM) in order to approve the financial statements, distribution of profits and Approval/Censure of Management.

Decision-making bodies: Classes and Power of Directors:

• Sole Director (Administrador Único)
• Sole and several Directors (Administradores Solidarios)
• Joint and several Directors (Administradores Mancomunados)
• Board of Directors (Consejo de Administración)

Appointment of Directors:

• Directors shall be appointed by the Shareholders Meeting (Art 214 LSC and Art. 142 Rules of Mercantile Register).
• When the administrative body is constituted by a board of directors, this one shall be formed by a minimum of three directors and in the SRL (Private Limited Liability Companies) shall not be more than twelve members.

Minimum number of independent Directors:

There is no binding rule. However, “The Olivencia Report” and “The Aldama Report” – two Codes of Best Practice – provide some recommendations concerning this question.

Term of appointment

• For Joint-Stock Companies (SA)

The term of appointment shall never be longer than 6 years (Art. 221.2 LSC and  and 145 Rules of Mercantile Register)

• For Companies Limited by Shares (SL)

Directors may be appointed for an indefinite period of time (Art. 221.1 LSRL)

Range of Directors’ liabilities

1. Does Law require an specific agreement – or disclosure – for determining the remuneration of Directors?

On the Joint stock companies, the scope of Directors’ duties shall be determined by the By-Laws. On the limited liability companies, the Directors’duties are generally not remunerated, unless the By-Laws establish a  remuneration and the method of calculation. Remuneration is often in the form of a percentage of after-tax profit.

1. Any limit?

(SA) The Directors’ remuneration is set only after allocating the legal and statutory reserve and at least the 4% – or other higher percentage determined in the Estatutes – of dividends in favour of shareholders.

(SRL) The aggregate number of Directors’ remuneration must not exceed 10% of the after-tax profit.

Liabilities:

(SA and SRL) Directors’ liabilities, contribution to damages caused in the course of their duties and the procedure of claiming against them, are set in detail in Articles 236-241; 25LSC

Annual Accounts-Financial and operating results: Duties and Liabilities

Necessary Documents: 1) Profit and Loss Account; 2) Balance Sheet; 3) cash flow statement; 4) Statement of Changes in equity;5) Memory; 6) Management Report; 7) Auditors Report; and 8) the certification of the AGM Minutes in which the approval of Annual Accounts took place.

Time Limit for delivery of documents

Directors will draft the Annual Accounts (Cuentas Anuales) no later than 3 months after the end of the corporate year (December, 31). The AGM will examine and approve or refuse these Annual Accounts no later than 6 months after the end of the corporate year.

Time Limit for deposit/application/registration: No later than 30 days after the AGM approves the Annual Accounts.

Authentication

Secretary and Chairman’s signature in the certification of AGM Minutes in which the approval of Annual Accounts shall be authenticated by a Public Notary.

Publication in a Legal Gazette/Mercantile Register

The Legal Gazette (“Boletín Oficial del Registro Mercantil”) shall publish a report on the fulfilment of corporate duties, and a notice that the Annual Accounts are publicly available in full. By-Laws are also publicly available in Mercantile Register.

Private Equity Companies

The Private Equity Act (November 2005) regulates the so-called “Venture Capital Entities” and their Management Entities.

A Venture Capital Company is legally qualified as a Financial Entity with the purpose of investing in: (i) Non-Financial Business, or (ii) Business that are not dedicated to non-listed Real Estate businesses.

These Entities may acquire listed companies within the term of 12 months of acquisition; squeeze-out measures have not been approved yet, to facilitate taking 100% of shares.

Bankruptcy

The reform of the Spanish Insolvency Act (Ley Concursal) carried out in September 2003 was a very relevant change because it finished off a legal system which had finally become obsolete. The modification of credit categories and its preferences was one of the most important elements of this reform.

Quoted Companies

Regulation:

Ley de Sociedades de Capital (Arts. 495-528)

Ley 24/1988, de 28 de julio, del Mercado de Valores.

“The Olivencia Report” and “The Aldama Report” – two Codes of Best Practice – provide some recommendations concerning Quoted Companies. However, there is a new -January 2006 – specific Best Practice Blueprint for quoted Companies, known as “The Conthe Report” and properly named “Unique Code for Best Practice Corporate Governance of Quoted Companies”. This Code includes the European Commission Recommendations (2005/162/EC) and (2004/913/EC).