According to Article 242 of the Companies Act, (“CA”) “[the] Board of Directors shall consist of at least three members”. However, according to the decision of the Directorate General of Registries and Notaries (the “DGRN”) of 14 March 2016, there may be situations in which the Board is formed by two.
The convening of the General Meeting is set in the CA as a duty of “the Directors”. However, the legislator has not determined how said duty should be exercised with regard to the various forms of management of companies. As a result various doubts have emerged, many of them already resolved by the DGRN or even by the Spanish Supreme Court, such as the following: it is possible for a Managing Director to convene a board meeting? Is it sufficient for it to be carried out by one/some of the joint administrators?
The question surrounding the power of the Managing Director was already resolved by the Supreme Court in the judgement of October 30, 2009. In addition, under Law 31/2014 of 3 December, which amended the CA, it was established that both the notice of the meeting and the preparation of the agenda and proposed resolutions are powers of the Board of Directors that cannot be delegated.
Regarding the second question, when a limited liability company (sociedad de responsabilidad limitada) has three or more joint Directors (a situation that cannot occur in a public limited company (sociedad anónima) in accordance with Article 210.2 CA), it shall be called by all of them, notwithstanding that for “external effects” the possibility of the performance of only two of them was provided for in the bylaws. Therefore, the call for a meeting – in a limited liability company – made solely by two of the three or more joint Directors is invalid. This circumstance has been analysed by the DGRN, which reiterates said “invalidity” in various resolutions. By way of example we may point to the resolutions of 23 March 2015 and 27 July 2015.
Having said that, is it possible for a Board of Directors composed of only two members to convene a General Meeting whose agenda goes beyond the mere provision of the vacancy produced? Such a question has been resolved by way of resolution dated 14 March 2016 of the DGRN. In this resolution there is debate about the possibility of registering certain agreements adopted – over and above the renewal of the Board – by a General Meeting of a public limited company. The particularity of this scenario is that the calling of the meeting was agreed by a Board of Directors that in principle was formed by three members, one of which subsequently resigned his position. While the Commercial Registry considers that the resignation is accompanied by the incomplete constitution of the Board –for not having a minimum of three members– in order to adopt resolutions beyond the reconstitution of the Board of Directors, the DGRN upheld the appeal and revokes the appraisal note of the Registry.
The foundation to which the DGRN has recourse is found in Article 247.2 CA, which states that for the valid constitution of the Board of Directors in a public limited company, the majority of Directors is necessary. Therefore, the Board being composed of three members, in light of this article merely the presence of two is required. In addition, under Article 248.1 CA, the agreement must be adopted by an absolute majority of Directors attending the meeting. In this case, where only two Directors remain in office, unanimity is necessary. On the basis of those precepts, the DGRN not only concludes that the calling of the General Meeting is valid, but that it extends the validity of the resolutions adopted by the General Meeting without restricting the agreement to the appointment of Directors. Unlike what would happen in the case of death, resignation of the sole Director, of all the joint and several Directors, of any of the joint Directors, or of the majority of members of the Board of Directors, in which case, the call may be made at the request of any of the shareholders to the court Secretary or Commercial Registrar, or directly by any of the surviving Directors, but in any case for the sole purpose of filling the vacancies (Article 171 CA).
The conclusion of the DGRN is surprising, in light of Article 242 CA, which regulates the minimum number of members who must form a Board of Directors: three. Therefore, although at the outset it is not possible for the Board of Directors to be composed of two members, at a later date –in the case of a post becoming vacant– it would be circumventing the legal minimum established by said provision. However, the DGRN states that this is without prejudice “to the obligation of the other Directors, in compliance with their duty of diligent management […], to facilitate the coverage of such position in the most appropriate way for social interest”.
Be that as it may, it is necessary to comply with the position adopted by the DGRN insofar as not subsequently revoked.
Finally, from the perspective of the obligation of the Director which causes voluntary resignation for renouncing the position (and not by termination agreed by the General Meeting) and that leads the Board of Directors to be inoperative, we must remember the doctrine established by the DGRN in other resolutions, under which:
- If the resignation is of all members of the Board, their resignation will not be effective as long as they cannot evidence the convening of a General Meeting for the appointment of new Directors (resolutions of 2 August 2012 and 29 September 2014).
- If the resignation is not of all members, the obligation of the Directors resigning consists of proving the notification of their resignation to the other Directors, so that they are the ones to convene the General Meeting for the appointment of new Directors (resolutions of 17 May 1999 and 18 July 2005).