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VI. Governing bodies of an S.A.
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The governing bodies of an S.A. are the shareholders’ meeting and the directors (who may or may not be organized as a Board of Directors, as explained below).
1. Shareholders’ meeting
The shareholders’ meeting is the S.A.’s supreme governing body. The law distinguishes two types of meeting: ordinary and extraordinary. Additionally, both ordinary and extraordinary meetings may be held as universal meetings, as discussed below.
a) Ordinary shareholders’ meeting
An ordinary shareholders’ meeting may be held as and when stipulated by the bylaws, but an ordinary meeting must be held within the first six months of the financial year to review management’s conduct of the business and to approve, if appropriate, the financial statements of the prior year and the proposed distribution of the prior year’s earnings. If the ordinary shareholders’ meeting is not held within the legal term, it may be called by a court, upon petition by the shareholders and subject to prior hearing of the directors.
b) Extraordinary shareholders’ meeting
Any meeting of the shareholders other than as described above is an extraordinary shareholders’ meeting.An extraordinary shareholders’ meeting can be called:
– By the company’s directors if and when they consider it in the company’s interests to do so.
– By the company’s directors when requested to do so by shareholders representing at least 5% of capital stock. In this case, the directors must call the meeting so requested to be held within thirty days following the date of the notarial notification to them to call it.
– By a court if the directors disregard the notification referred to above.
c) Venue and method of calling a meeting
Both ordinary and extraordinary shareholders’ meetings must be held in the municipality where the company has its registered offices. A Spanish S.A. must be domiciled in Spain. Nevertheless, a universal shareholders’ meeting (see below) may be held anywhere.
The formal requirements for calling a meeting, which relate to publicity and advance notice, are the same for ordinary and extraordinary meetings. Meetings must generally be called by a notice published in the Official Gazette of the Mercantile Register at least 15 days in advance of the meeting and in a high-circulation newspaper of the province in which the company has its registered offices.
d) Universal shareholders’ meetings
Regardless of the type of shareholders’ meeting (ordinary or extraordinary), the formal call requirements need not be followed if shareholders representing one hundred percent of the capital stock are present and agree unanimously to hold a shareholders’ meeting. Such meetings are called "universal" shareholders’ meetings.
e) Quorum and voting rules
Shareholders’ meetings may generally adopt resolutions by simple majority provided the quorum requirements described below are met.
In general, the quorum for a shareholders’ meeting, at the first call, exists when the shareholders present or represented at the meeting own at least twenty five percent (25%) of the voting capital stock. If a second call has to be made (because there was no quorum at the first call), the meeting is deemed to be legally convened regardless of the percentage of capital stock present or represented at the meeting.
A company’s bylaws may set special call and quorum requirements for shareholders’ meetings; however, the special quorum requirements cannot be lower than the legal requirements outlined above.
Special quorums are required by law for the adoption of resolutions on certain matters, e.g. debenture issuance, capital increase or reduction, any transformation, merger or spin-off of the company and, in general, for the adoption of resolutions amending the bylaws. In such cases, the quorum required at the first call exists when the shareholders present or represented at the meeting own at least fifty percent (50%) of the subscribed voting capital stock. At the second call, a quorum will exist if at least twenty-five percent (25%) of the voting capital stock is present or represented at the meeting.
However, if a meeting subject to a special quorum requirement is held on second call with less than fifty percent (50%) of the voting capital stock present or represented, then a special voting rule stipulates that resolutions may only be validly adopted by the ‘aye’ votes of shareholders owning at least two-thirds of the capital stock present or represented at the meeting.
f) Proxies
A shareholder may be represented at a shareholders’ meeting by any person, who need not be a shareholder unless the bylaws provide otherwise.The proxy must be in writing or using certain means of long distance communication, and specific for each meeting.
A shareholder may cast his vote by mail, email or using any other means of long distance communication as provided for in the bylaws and will then be considered to be present for the purpose of establishing the quorum for the meeting.
Special rules regulate the public solicitation of proxies. Proxies are deemed to have been solicited publicly if one person represents more than three shareholders.
2. Directors
An S.A.’s executive governing body is its director or directors, who need not be Spanish citizens. The actual form of administration, i.e. Board of Directors, sole director, joint and severally liable directors or joint directors, must be stipulated in the bylaws, but can be changed at any time by the shareholders’ meeting.
If a Board of Directors is created, it must have a minimum of three members. Furthermore, no maximum legal limit exists.
A director is normally not required to be a shareholder unless the bylaws provide otherwise.
The Board of Directors may validly adopt resolutions in writing without holding a meeting, provided certain requirements are met.
An S.A.’s directors are appointed by the shareholders’ meeting. Minority shareholders that meet certain thresholds of ownership are entitled to proportional representation on the Board.
Appointment as a director becomes legally effective when accepted by the appointee, and must be registered in the Mercantile Register within a stipulated period of time.
The term of office of directors is set by the bylaws and cannot exceed five years. Directors may be reelected for one or several further five-year periods.
The shareholders’ meeting can freely dismiss the directors at any time.
The following paragraphs refer to some special features of a Board of Directors:
a) Powers of the Board of Directors
– The Board of Directors is the management body of the corporation.
– With respect to third parties, the Board of Directors represents the company in all acts within the scope of its corporate purpose.The company is bound even with respect to acts outside the scope of its corporate purpose as registered in the Mercantile Register if a third party acted in good faith and without gross negligence.
– Any limitation on the representative powers of the Board, even if registered in the Mercantile Register, is not binding on third parties.
– An S.A.’s Board may delegate its functions to one or more managing directors
or to an executive committee of Board members (however, the Board cannot delegate its accountability, or its obligation to submit annual financial statements to the shareholders’ meeting, or the powers delegated to it by the shareholders’ meeting without specific authorization from the latter to do so).
b) Adoption of resolutions by the Board
The quorum for a Board meeting is the presence, either personally or by proxy, of one-half plus one of the Board members.
c) Majority for adoption of resolutions
Board resolutions are adopted:
– Generally, by an absolute majority of the directors attending (in person or by proxy).
– Exceptionally, for permanent delegation of Board powers, by the affirmative vote of two-thirds of the Board’s members; such delegation is not legally valid until it has been registered in the Mercantile Register.
d) Liability of directors
Directors are held to a standard of faithful defense of the corporate interests, loyalty and secrecy.
Directors are liable to the company, its shareholders and its creditors for damages caused by acts that are illegal, contrary to the bylaws or done in breach of the duties pertaining to their office.
In such cases all the directors are jointly and severally liable.A director can only be exonerated from liability if he proves that he did not participate in the adoption or execution of the resolution and that he was unaware of the existence of the harmful act or, if he was aware of it, did everything reasonably possible to mitigate it or at least expressly opposed the resolution giving rise to the harm.
e) Powers of attorney
In addition to the powers vested in the Board of Directors, general powers of attorney may be conferred upon any person, whether or not a director, in which case they must be documented in a public deed of power of attorney registered in the Mercantile Register.
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