Can the powers of a chief executive officer be limited under Spanish law?

In Spain, the members of the board of directors of commercial companies do not, as such, hold any powers of attorney per se to represent the company. 

To facilitate legal transactions and the operation of companies managed by a collegiate body, it is common for the board of directors to grant or delegate its authorities to one or more persons.

Article 249 et seq. of the Spanish Companies Law (Ley de Sociedades de Capital) regulates the delegation of authorities by the board of directors.

There are two alternatives: either granting powers of attorney to a person (whether individual or legal), to be exercised either jointly or severally or delegating authorities by means of appointing one or more chief executive officers (CEOs), such authorities to be also exercised either jointly or severally.

Although in practice both alternatives may appear very similar, there are important legal differences between them, in particular as regards to the possibility of introducing limitations on the exercise of the delegated authorities.

There is no doubt that, in the case of granting voluntary powers of attorney (an express mandate from the company by which it explicitly grants powers of attorney to a person), these are governed by their wording, scope and limits. If they are general powers of attorney, they shall be registered with the relevant Commercial Registry and their content and limitations will be enforceable against third parties.

In the case of CEOs, the Spanish Companies Law also appears to allow such limitations pursuant to Article 249.1, which establishes that, unless the articles of association provide otherwise, "the board of directors may appoint one or more chief executive officers or executive committees from among its members, establishing the content, limits and form of delegation."

Administrative case law: no restriction and no enforceability against third parties

Although, in accordance with article 249.1 of the Spanish Companies Law, it would appear that the board of directors may in some way limit the authorities delegated to a CEO, in practice administrative case law has consistently held that it is not possible to limit, vis-à-vis third parties, the delegation of authorities granted in such cases. Moreover, any restriction, even if registered with the Commercial Registry, will not be enforceable against a third party acting in good faith, as it is regarded merely as a private agreement between the company and the CEO concerned.

According to the Directorate General for Legal Security and Public Faith (Dirección General de Seguridad Jurídica y Fe Pública), the underlying rationale lies directly in the protection of third parties and the security of legal transactions: a person who reasonably relies on the apparent authority of a representative is not required to investigate whether, in addition to the appointment itself, there are internal rules requiring further authorizations or prior approvals. By contrast, according to this body, such restrictions do provide internal organizational clarity and traceability for supervision and accountability purposes.

Osborne Clarke comment

It is not possible to limit the authority delegated to the CEO vis-à-vis third parties. Accordingly, if the board of directors decides to opt for this form of delegation, it is advisable to establish mechanisms, procedures and protocols that ensure that any limitations on the CEO's authorities remain within the company's internal sphere.

Good corporate governance combines clear organic delegation, well-defined voluntary powers of attorney (modulated by subject-matter, amounts or joint exercise) and robust internal controls to achieve maximum efficiency.

It would be advisable for companies to approve usage policies providing that any limitation intended to have external effect be implemented through voluntary powers of attorney, rather than by restricting the delegation of organic representation.