Compensation for directors for the provision of services

Published on 22nd Apr 2016

Is it possible for a director to receive compensation of any type when the by-laws do not set out that the position should be remunerated?

Article 217 of the Companies Law sets out that the position of director is unremunerated, unless the company’s by-laws determine otherwise, in which case the compensation system and concepts shall be specified. The General Meeting is the corporate body responsible for approving the maximum amount that the managing body should receive annually. If the General Meeting does not determine the amount to be paid to each director, the management body will be responsible for distributing said amount among its members.

In this respect, it should be pointed out that the amendment of the regulations governing the board of directors’ remuneration requires the modification of the by-laws. Consequently, the approval of this amendment by the General Meeting is required with the favourable vote of over 50% of the votes corresponding to the shares into which the share capital is divided. Additionally, the by-laws may foresee a higher reinforced majority.

Without prejudice to the doctrinal discussions on article 249.bis of the Companies Law (compensation of executive directors), which is not the topic of this article, it should be highlighted that article 217 of the Companies Law regulates the compensation of directors for the performance of the duties inherent to this position. There is no specific list detailing these duties but, among them, the following may be found:

  • the management of the company;
  • the management of the governing body in order to ensure the good running of the company;
  • decision-making concerning the company;
  • the representation of the company; and
  • capturing business opportunities for the company.

Notwithstanding the above, it is possible that a director provides services to the company by performing tasks which are not inherent to the position of director. For instance, consulting services to prevent labour risks, translation services, decorating services or any other type of services which are clearly different from the duties mentioned above.

The compensation that a director receives in payment for the provision of services to the company must be approved by the General Meeting, pursuant to article 220 of the Companies Law. Such approval requires an ordinary majority, that is, the favourable vote of the majority of validly cast votes, provided that they represent at least a third of the share capital. Moreover, this required majority may be reinforced by the by-laws.

In any event, the reception of any type of remuneration as a result of the provision of services or work must be justified, be legal and not correspond to a duty inherent to the post of director.

In summary, and leaving out any tax or labour implications that are not covered in this article, the Companies Law sets out the possibility of compensating directors who provide services different from those inherent to their position by means of a specific process set out in article 220 of the Companies Law mentioned above.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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