The remuneration of social directors by Capital Companies Act (LSC)

Social director may perform their duties without receiving remuneration for the exercise of their functions, in this case the position of administrator will be free, or on the contrary they may receive financial compensation for the performance of their duties, passing the charge to be remunerated.

This second assumption has become a thorny issue within our area of practice and especially the controversy focuses on the provisions of articles 217 and 249 of the Capital Companies Act (“LSC”), which have been reformulated with Law 31/2014, of December 3, for the improvement of corporate governance.The new article 217 LSC, maintains the obligation to include in the bylaws of the company, the remunerated nature of the position of director, and it also forces to indicate in the bylaws the remuneration concepts to be received by the directors in their condition “as such”. On the other hand, it provides that the general meeting will decide the maximum amount to be received by the set of directors and that this must be set according to the importance of the company, the economic situation and the market standards.

The new wording of article 249 LSC, is the one that leads to the controversy. In its third section, it establishes that when the board of directors names a chief executive or executive, a contract must be entered into between the latter and the company. This contract provides for section four, details the director’s remuneration system and excludes the remuneration received that is not provided for in it.Thus, while Article 217 of the LSC refers to the remuneration of directors or directors “as such”, Article 249 of the LSC refers to the remuneration of the CEOs or executives, and as a result, different criteria have been applied by the parties of the authorized bodies.

Finally, the Supreme Court (TS), in its sentence 98/2018 of February 26th of 2018, considers that the regulation of article 217 LSC is not limited to the directors “in their condition as such”, but also covers the delegated or executive directors, in such a way that the remuneration of the latter would not be exclusively covered by article 249 LSC, if not also by article 217 LSC. The TS justifies its position, with what is included in section VI of the preamble of Law 31/2014, which states that the law requires that the bylaws establish the remuneration system for directors and, notes, “with special reference to the remuneration regime of the directors who perform executive functions”.

Consequently, the system for setting the remuneration of the CEOs or executive directors, after the LSC’s reform, is structured in three levels: the first is the bylaws; the second level, that is the maximum amount of remuneration established by the general meeting; and the third level, that is the decisions of the directors, to whom corresponds the distribution of the remuneration between them. Therefore, if the position of directors is paid, the bylaws must include the remuneration system of all the directors and the remuneration of the chief executive or executive has to adjust, in addition to the contract provided for in article 249 LSC, to the maximum limit set by the general meeting.

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