l8 condenced up to slide 6 finish

management body adminstrative organ

• regulated in articles 209 and following of the lsc

• it is one of the essential organs of a company alongside the gm

core legal responsibilities

the management body has 3 main legal responsibilities

• managing the company= running the business day to day basis

• executing decisions of the gm= implmenting shareholder decisions in practice

• representing the company externally= dealing with third parties

the management body is the active organ of the company= it is the body that actually makes things happen in practice

core functions

management of the business= refers to the day to day running of the company

• tasks:

  • organising operations

  • making commercial decisions like pricing and hiring

  • setting business strategy

• division of powers

  • management body= handles ordinary and strategic decisions

  • general meeting= handles major structural decisions such as mergers and ammendments to bylaws

execution of coporate will=

• the will of the shareholders is expressed through the gm

• the management body must implement gm decisions

• the management body must esnure resolutions are applied in practice

  • if shareholders approve dividends directors must oerganise and execute payement

representation of the company= represents the company in commercial dealings and legal relationships

• acts on behalf of the company

• actions legally bind the company even with third parties

  • singing contracts= company is bound; entering obligations= company is responsible

legal model vs reality

legal model= theory under lsc

• the gm is the supreme authority and the management body is subordinate

• implies shareholders control the company and directors follow instructions

real model in practice= in reality especially in large companies

• directors hold most power controlling daily operations and strategy

  • companies are complex and requre expertise

  • shareholders are often passive invstors or do not attend meetings (abstentionism)

• therefore power shifts from shareholders to directors

special case: board of directors

• often management functions are often delegated from the board of directors to executive directors and committees

  • by law the board manages the company

  • but in practice the executives manage and the board supervises

• this creates tension and legally shareholders control the company

  • but practically directors (especially execs) run the company

nature of the management body

necessary body = mandatory under the lsc like gm

• every company must have one

• they cannot be removed or eliminated

• gm cannot replace it

  • someone must always manage the company and represent it externally

  • without it company cannot function legally

permanent body= exists continously

• not dependant on meetings

• contrasts with gm

  • gm= temporary and intermittent

  • management= constant operators

composition= can consists of natural persons or legal persons

• contrast with gm requiring natural indidvuals

• if a legal person is appointed it must be designated a natural person representative

  • ensures human decision making

types of management systems

the lsc allows flexibility in choosing structure based on

• company size

• complexity

• need for control vs flexibility

sole adminstrator= single person manages the company

• full control over decisions

• full responsibility

• advantages

  • simple strucuture= faster decision making

• disadvantages

  • no internal control = power concentrated in one person

• suitable for small companies and family businesse

several joint and several adminstrators= multiple adminstrators each acting independantly

• all have the powers to represent the company, sign contracts and bind it legally

• advantages

  • speed and flexibility

• disadvantages=

  • less control= one adminstrator can act without the others

joint adminstrators= multiple admisntrators must act together

• decisions usually require unanimity or multiple signatures (all agree)

• advantages

  • greater control= reduced risk of abuse

• disadvanates

  • less flexibility= slower ecision making

board of directors= a collegiate body with multiple members

• decisions made collectively via a majority vote (more agree than disagree)

• have powers of management and representation

• in practice often delegate powers to executives and committes

  • take a supervisory role rather thsn management

• suitable for large companies

special flexibility in sl companies

sl companies may include several possible mnagement structure options in the bylaws

• articl 210= gm can swith between strucutures without ammending the bylaws provided the options are already included

• advantages:

  • high flexibility

  • easy adaption to new needs

  • no complex legal reform required

• relfects more personalised nature of the company

strucutural comparison

simple structures ie sole adminstrator and several joint

• faster decisions

• less control

complex structures ie joint and board

• greater control

• slower decisions

key overall themes

central role of the management body

• the operational core of the company

• converts decisions into action

seperate functions

• gm forms the will

• management body executes the will

theory vs practice

• legal framework implies shareholders control

• reality implies directors (espeically executives in the case of a boar structure) dominate

governance tensions

• formal legal structure vs practical business reality

powers of the management body

main powers

1. adminstration and management= internal

2. representation= external

adminstration/management

concerns the internal life of the company

• directors must do everything

  • necessary

  • useful

  • conveneient

• for achieving the corporate purpose

• unless the matter belong to the general meeting

this includes

• directing production

• business decisions

• pepapring annual accounts

• convening meetings

• managing operations

representation of the company

this concerns who can legally bind the company before third parties

• the bylaws determine representation according to art 233

• however the bylaws must respect the legak structure of the adminstration system

representation according to organisational form

sole adminstrator

• representation belongs exclusively to one sole admin

joint adminstrator

• representation belongs to multiple admins=. one admin cannot act alone

• sa= only 2 joint adminstrators allowed

• sl= may be more than 2

  • must be excercised joitly by at least 2

joint and several (solidarity)

• each admin indidually represents the company= each can act indpendantly

• the bylaws may disitrubte powers internally but this only has interna effect

• third parties may still rely on the authotiry of each adminstrator

board of directors

• representation belong collectively to the board

• representation may additionally by granted to one or more directors

• this additional representation never replaces the boards authority

scope of power

rule 1

• the directors authority includes all acts connected with the corporate ourpose stated in the bylaws

• only acts clearly outside the corporate purpose are excluded

rule 2

• even if directors act outside the corporate purpose the company is still bound when third parties act in good faith without gross negliegence

consequence

• the corporate purpose mainly has inteernal effectiveness

• good faith parties are protected

requirements to be a director

a director can be

• a shareholder

• a non shareholder

  • unless the bylaws require shareholder status

a directoe can be

• a natural person= indidual

• a legal person= company or legal entity

  • if a entity is appointed it must be designated a natural person representative

capacity

directors must have legal capacity to engage in business

• minors cannot be directors

  • exception= emancipated minors

• incapacitated adults cannot be directors

prohibitions

• persons disqualified in solency proceedings

  • ie director for fraudulant activity causing insolvency

• persons convicted of certain crimes

  • ie fraud, economic crimes, falisification

• persons legally forbidden from carrying out business activity

  • ie public officials with incompatible function

• civil servants connceted to the companies activities

  • officials working in areas related to the companies main business actitivty ie gov offcial supervising energy regulation working for green energy company

• judges and magistrates

  • protects judicial indepdnance and impartiality

• other persons subject to legal incompatibility

  • competition law, banking regulations

appointment

• inittial appointment= directors appointed upon incoproation

• subsequent appointment= made by shareholders in the gm

  • each director must be voted for seperately not grouped

• alternate directors= the gm may appoint sibsitute directors if allowed by the bylaws

  • fills future vacancies

• special appointment in SA= applicable only when admin is organised through a board of directors

  • proportional representation system= protects minority shareholders

  • co-optation= allows the board to itself fill vacancies temporarily

acceptance

appointment only becomes effective after acceptance by the director

registration and publication

• registration in the commericial registry

  • not necessary fo validity between company and director

  • necessary for effect against third parties

• publication in the borme

duration of office

sl

• directors are appointed for an indefinite term

• the bylaws may establish a limited duration

sa

• the office is mandatorily temporary

• the bylaws must specify the duration

• the maximum duration is 6 years renewable

expiration of registration

• when the term expires renewel of registration is required

• the appointment registration expires

  • after the next general meeting (when new should be appointed)

  • or after the legal period for holding the next ordinary gm passes

• the marcantile registrar records expirly through a marginal note

revocation/dismissal

the gm can remove directors at anytime

• no justiication is needed

• does not need to be on the meeting agenda

• simple majority of the gm is enough unless the bylaws require otherwise

for affects against third parties termination must be

• registered

• published in the borme

resignation

directors may freely resign

• no justification is required

• duty to avoid paralysis= must take reasonable measures to avoid company paralysis

formal requirements

• must be in writing

• must be communicated in an proovable manner (impossible to deny or dispute)

  • delivery signed by company

  • email with knowledge of receipt

  • notorised communication

    • exception= if occurs during a gm or board meeting

• registration and publication

effectiveness

• internslly= from communication to the company

• against third parties= registration + publication in the borme

remuneration

the office of director is presumed to be unpaid unless the bylaws state otherwise

• exception= listed company directors must be remunerated

remuneration rules

• the bylaws must specify the remuneration system or multiple systems

• the bylaws cannot:

  • establish alternative systems leaving total discretion to the gm

  • allow the gm to decide whether they should be paid at all

remuneration systems

• fixed salary

• profit sharing

• variable remuneration on company performance

• meeting attendance fees

• bonuses

• pension systems

• severance payements

distribution

the gm fixes the maximum total annual remuneration for all directors

• this remains valid until modified

• the amdin body itself distributes remuneration among directors

• principle of proprotionality= remuneration must be proportional to

  • company importance

  • economic situation

  • market standards

if remuneration includes participation in profits the bylaws must estbalish

• the exact percentage

• the maximum percentage

  • if only a max percentage is fixed the gm decides the annual percentage

duties and liabilities

directors owe 2 major duties

• duty of dilligence

• duty of loyalty

duty of dilligence

• directors must act as an orderly business man

• directos must dedicate sufficient time

• directos must remain informed about company affairs

• business judgement rule= protects directors when making business decisions if they

  • act in good faith

  • with no personal interest

  • are adequately informed

  • follow appropriate procedure

duty of loyalty

duty of loyalty= directors must act

• loyally

• in good faith

• in the best interest od the company

related duties=

• directors must use powers properly= no use for purposes other than those granted

• directors must act indpendantly= excercise personal judgement

• directors must maintain condidentiallity= even after leaving oddice

conflict of interest=

• directors must avoid participating in conflicted decisions= must abstain in voting in conflict of interest

  • exception= matters relating to their positions as directors

• directors must avoid conflicts of interest= both direct and indirect

discolsure duties=

• affected directors must

  • inform the other directos

  • sole director= infrom the gm

• conflicts must appear in the annual report

mandatory nature

• the bylaws cannot limit the duty of loyalty

• however certain conflicts may be waived/allowed by the board or the gm

  • if the waiver is voted in the gm the conflicted director must abstain

prohibitions under art 229

• transanctions with the company

  • exeception= ordinary standard condition low relevance trasnactions

• impropoer use of coprate name or position

• use of coporate assets for private purposes

  • including confidential information

• exploiting corporate opportunities

• receiving advantages from third parties

  • exception= normal courtesy gifts

• competiting with the company

civil liabiity

directors may harm

• the company

• shareholders

• creditors

• third parties

directors are liable for

• acts contrary to the law= fault or intent is required

  • fault is presumed

• acts contrary to the bylaws = fault or intent is required

  • fault is presumed

• breaches of directors duties = malicious or negligent conduct

liability extends to

• defacto directors= persons acting as directors without proper title

• shadow directors= persons whose instructions directors follow

• representatives of legal person directors= joint and severally liable

• senior manargers= art 236.4 extends some duties to top management

joint and several liability

• all members involved in the harmful acts are jointly and severally liable

exoneration grounds

a director avoid liability if they prove

• they did not participate

• they were unaware

• they tried to avoid the damage

• they expressly opposed the act

specific situations

• if the director did not attend the meeting they must prove

  • no involvement in execution of the decision

  • lack of knowledge of the decision

• if the director knew about the act they must of

  • challenged the decision

  • tried to prevent damage

• if they were present at the meeting they must vote against it

  • mere abstention is insuffcient

ratiication by the gm

• even if shareholders approve the harmful act directors are not exonerated

corporate action for liability

for harm done to the company

• firstly = the company itself may sue directors

  • requires a gm meeting resolution

    • may be adopted even if not on agenda

    • requires ordinary majority

    • automatically removes affected directors

• secondly = minority shareholder may sue if

  • directors fail to convene the requested meeting

  • the company doesnt sue within one month of resolution

  • the gm refuses to sue

  • exception= no prior general meeting is required for duty of loyalty breaches= minority can take direct action

• last resort= creditors may sue if

  • the company and shareholders fail to do so

  • the company assets are insufficient to cover debts

    • usually occurs in sinsolvency/pre insolvency situations

    • the creitors are sueing on behalf of the company to maximise company assets they can retrieve, not for themselves

• time limit= 4 years prescription from when the action could first be brought

idnidual liability action

shareholders or creditors may sue directly for personal damage suffered individually

• time limit= 4 years prescription from when the action could first be brought

the board of directors

• the most common system in medium and large corporations espeically SA’s

• mandatory when adminstration is entrusted jointly in more than 2 persons

• collegiate body acting collectively

• decisions by majority

• collective management powers

appointment systems

sl

• maximum number of 12 directors to keep personalist small nature

sa

• no limit to number of directors to reflect open nature

• special appointment system

  • proportional representation= protects minority shareholders

    • shareholders holding enough capital together to meet the threshold may appoint on director directly

    • threshold= company share capital/ number of board seats

    • cannot be prohibited by the bylaws

  • co optation= board temporily fills early vacancies

    • vanacncy must be before term expires ie death, remval for breach

    • temporary appointee must be a shareholder

    • approved later or replaced by the gm in the next meeting

legal regime of the board

• lsc articles 242-251

• rrm (registry regulations)

• by laws

  • may limit internal board regulations

  • may prohibit internal board regulations

• internal board regulations

  • these are not included in the bylaws and are seperate

operation of the board

frequency of meetings

• at least once every 3 months

quorum= board validly consituted when

• the chairman convenes it

• half plus 1 of the members attend/are represented

  • in Sl the bylaws may estbalish another quorom reflecting personal nature

representation

• may be prohibited by the bylaws

• if allowed representation must always be granted to another director

convening by the minority directors=1/3 of directors may convene the board if

• the chairmain unjusitfiabey refuses

• after one month has passed

voting= resolutions adopted by absolute majority of directors present

• each director votes indidually

• not according to represented capital like the gm

minutes= discussions and resolutions must be recorded in minutes book

• must be signed by the chairman and secretary

• the secretary does not need to be a director if the bylaws allow it

universa board meeting= valid without notice if

• all directors are present

• no director objects to the meeting

reinforced quorom or majority

• by laws may increase quorom or majjority requirements but they cannot reduce legal minimus

written resolutions without meeting SA ONLY

• if by laws do not prohibit it

• if no director objects

delegation of powers

for more efficient management the board may delegate powers ie internal powers to

• executive directors

• executive committees

some powers cannot be delegated

• general strategies

• waiver of loyalty obligations

• annual accounts

• directors remuneration

• convening gms

• peparing agenda for meetings

• proposing resolutions

requirements

• reinforced majority 2/3 of the board

• registration in the com reg

  • consitutive for effects on third parties

powers of attorney

• the board may also grant ordinary powers of attorney to any person ie external representation

• possible regardless of management structure

challenging board resolutions

board resolutions may be challeged similarly to gm resolutions

• actions may be brought by

  • directors

  • shareholders holding 1% capital

• actions may be brought for

  • acts against law

  • acts against bylaws

  • acts against board regulations

• time limit of 30 days

  • for directors= from resolution adoption

  • for shareholders= from knowledge of the resolution with a max limit of 1 year from adoption

summary

• the management body is a necessary and permanent body of the company

  • the gm cannot assume its functions

• main functions od directors:

  • management of the cimoany

  • representation of the company before third parties

• forms of adminstrations

  • sole

  • several joint (each act indidually)

  • joint (act together)

  • board of directors (act as a collegiate body)

• the company is generaly bound by directors acts with good faith third parties even if the act is outside the corporate purpose

• directors may be

  • natural or legal persons

  • sharehodlers oe non shareholders (unless byaws require otherwise)

• cannot be directors

  • minors/non capacitated

  • disqualified insolvents

  • judges and madjistrates

  • legally incompatible public officils

• appointment via the gm

  • acceptance required

  • registration in com r + borme publication needed for third party affects

• duration

  • sl= indefinite usually

  • sa= mx of 6 years

• director may be

  • removed at anytime by g,

  • resign freely but must notify the company in writing in a irrefusable manner

• the offci is unpaid unless bylawsh establish remuneration

• main duties:

  • dilligence= orderly businessman

  • loyalty= act in companies best interest

• directors must avoid

  • conflicts of interest

  • competiting with the company

  • using assets and opportunities for personal benefit

• directors are liable for

  • breaches of law/bylaws

  • breach of duties

  • damages caused to company/shareholders/creditors

• liability is joint an several for all directors involved

• corporate liability action brought mainly by rhe company trough gm resolutions

• indiv liability fwhere shareholders/creditors sue for their own friect damage

• board of directors

  • acts collegitaely

  • aopts resolutions by majority

  • cincened every 3 months

• some board powers cannot be delegated

  • annual accounts

  • general strategy

  • convening the gm

  • directors remunertaoy decisions

• boad resolutions challengwable within 30 days