The Board of Directors’ Regulations: what are they and when are they mandatory?
Within the Spanish legal system, legal entities are regulated and governed by two main bodies; (i) the General Meeting and; (ii) the Administrative Body, the latter being in charge of the management and representation of the Company. Thus, Royal Legislative Decree 1/2010, of 2 July, which approves the revised text of the Corporate Enterprises Act (‘Ley de Sociedades de Capital’) regulates the different ways of organising companies. In the following article, we provide more information about the way in which a Public Limited or Private Limited Company can be organised.
Thus, one of the ways of organising legal entities under the prism of the Corporate Enterprises Act is the Board of Directors, a collegiate body par excellence and one of the bodies most frequently requested by clients at Devesa. However, despite the fact that this body is regularly used and known, there is a specific legal figure which is the Regulations of the Board of Directors.
What are the Rules of Procedure of the Board of Directors?
The Regulations of the Board of Directors are the set of rules that establish the principles of action, regulation, organisation and operation of the Board of Directors and of the Committees created within it and, in their drafting, shall be subject to the regulations in force and to the provisions of the Articles of Association of the entity.
This instrument therefore regulates the function, composition, structure and duties of the Board of Directors, determines the appointment and removal of its members, the remuneration of directors and the manner of setting the variable milestones for executive directors, establishes the relations of directors with their shareholders, with the company, with its auditors and with other intermediaries, and also regulates the system of Board committees.
Thus, the Regulations of the Board of Directors establish and determine all those aspects relating to the Board of Directors, being the internal rules of the company to which the collegiate management body must submit, and will be more or less extensive depending on the body’s own considerations.
Are the Rules of Procedure of the Board of Directors mandatory?
Title XIV, Chapter VII of the Corporate Enterprises Act sets out the special features of listed companies, one of these being precisely the Regulations of the Board of Directors. Thus, while this document is not mandatory for ordinary legal entities (unlisted companies), it is mandatory for listed companies.
Article 528 expressly includes the mandatory nature of this rule and establishes that, in listed companies, the Board of Directors, with the report of the General Meeting, must approve the Board of Directors’ Regulations, in the terms indicated, in order to guarantee the best possible administration of the company.
These Regulations must be notified to the National Securities Market Commission (Comisión Nacional del Mercado de Valores), incorporating a copy, and the notification must be recorded in the Companies Register.
The Regulation will therefore be fully public and freely accessible to third parties, in order to ensure the transparency of listed companies and to provide greater stability and security for shareholders in the management of companies, while respecting the principle of self-regulation.
Although not compulsory for unlisted companies, the Board of Directors’ Regulations may be drawn up for unlisted companies whose management and representative body includes the figure of the Board of Directors, in order to provide shareholders with greater comfort and confidence by expressly regulating the manner of organisation and operation of the executive arm of the company.
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