There are two main decision-making groups in companies:
- The General Meeting, which constitutes the governing board and is made up of all the company’s shareholders.
- The management entity, which exercises the representative functions and is appointed by the company’s General Meeting.
It is on this last group that we will focus in this article. The law, in the Royal Legislative Decree 1/2010, of 2nd July, which approves the Consolidated Text of the Capital Companies Act (LSC), establishes various modalities within the administrative entity that may be more advantageous for the company depending on its needs.
What types of management entities are there?
- Sole Administrator: the power of representation will correspond to a single person, natural or legal, who will be the one to exercise the functions of administration and representation, not being able to delegate his/her position to a third party.
- Joint and several Directors (Two or more): the power of representation will correspond to each person, so that each one of them will be able to act separately, without the need of the other, being able to perform individually any act that binds the company.
- Jointly signing Directors (Two or more): the power of representation will be exercised jointly signing directors by at least two of them in the manner determined by the bylaws.
- Board of Directors: this is a collegiate entity, in which the agreement of the majority of its members will be necessary to carry out an action. In the case of limited liability companies, the board of directors must be formed by a minimum of three directors and a maximum of twelve.
What is the main difference between each of them?
Although all of them perform the same functions, the way in which this is done differs in some cases and others, which entails a series of advantages and disadvantages depending on the type of modality chosen.
In the case of the sole administrator, this is the sole representative of the company and, therefore, acts individually, having almost unlimited power in the company, which also means that he/she has a series of obligations and responsibilities that can affect his/her own personal assets and have criminal consequences.
On the other hand, in the case of two or more joint and several administrators, each one of them can act separately, which facilitates the decision making and speeds up the actions to be taken, however, this has a counterpart which is the possibility that there is a lack of knowledge of the acts carried out by the other one.
In any case, it is important to take into consideration that the actions carried out by one of the administrators will bind the company, without prejudice that the other administrator can request responsibility in case of disagreement.
If the form of administration falls on two or more jointly signing administrators, as we have indicated above, it will be necessary that at least two of them act jointly, this will provide, on the one hand, a greater security to the company with respect to the decision making, since it will not be possible that they are adopted unilaterally by only one of them, nevertheless, it is necessary to take into consideration that this can slow down the decision making, since it will be necessary at least the consensus of two of them.
Finally, the board of directors is a collegiate board that requires the majority agreement of its members for the adoption of any decision of the company. In this case, the representation of the company does not fall individually on each of the members of the board but is collegial.
This form of administration is highly recommended in cases where there are different interests among the partners of the company, since it allows each of them to have their interests represented within the administrative entity.
As with any collegiate entity, a quorum of attendance and a majority will be necessary for the adoption of resolutions. Therefore, in order to the board to be considered validly constituted, half plus one of its members must be present at the meeting (members present or represented), and resolutions will be adopted by an absolute majority of the directors attending the meeting.
It is also important to take into consideration that within the board it will be necessary to appoint certain positions that will have different functions assigned to them:
- President (or vice-president): The president of the board is responsible for convening and drawing up the order of the day, as well as presiding and coordinating the meetings.
- Members of the Board: The other members of the Board shall perform, together with the President, the functions of the administrative board, and shall be responsible, together with the President, for the running of the Board.
- Secretary of the Board: The Secretary’s objective is to ensure the correctness of the procedures and compliance with the established regulations.
The position of secretary may be held by a member of the board or not, however, it is advisable that this function be performed by a lawyer or expert in legal matters, since his/her functions will consist of advisory work, formal work, certifying the resolutions of the board, including their notarization, if necessary, etc. (For further information on the position of secretary non-director, please see the following link https://www.ruizballesteros.es/en/the-non-director-secretary/).
Although we have said that the action is collegiate, in the case of the Board, the law contemplates the possibility of appointing one or more Managing Directors or an Executive Committee, to whom all or part of the powers of the Board may be delegated, except those powers that cannot be delegated by law, in order to expedite the taking of certain decisions.
In the event that several Chief Executive Officers are appointed, it is important to establish that the delegated powers be exercised directors signing jointly or jointly and severally, indistinctly by any of them, and it may even be established that certain powers be exercised by the joint signatures of the directors or jointly and severally.
Therefore, as can be seen, the advantages and disadvantages of each of the modalities differ according to the form chosen, so the adoption of one form of administration or another will depend on the structure of the company, its interests and above all on the strategic needs and the type of decisions that need to be adopted in the day-to-day running of the company.