Important amendment to the Capital Companies Act

Published 10 December 2015 by Arco Abogados

Law 31/2014, in force since December 25th, 2014, amends the Spanish Companies Act (Ley de Sociedades de Capital) with the aim of strengthening the policy on Corporate Governance, affects all Spanish companies and it is absolutely relevant for joint ventures or companies with several shareholders, where one or more of them are members of a group of companies. Such amendments to the Act were the result of a Commission of Experts on Corporate Governance that convened at the request of the Council of Ministers. Due to the growing interest in Corporate Governance, the Commissions objective was to analyze its situation in Spain and propose measures to improve the efficiency and accountability in the management of corporations.

The changes to The Companies Act can be grouped into two broad categories:

- The general meeting and the rights of the shareholders

- The Board of Directors.


As a result of the reform, the powers of the general meeting were expanded in certain circumstances. One of the consequences is that the General Meeting of all type of companies now (before the reform, only SL -Limited Companies-) has the ability to give direct instructions to the management body (Director or Board of Directors). Regarding the rights of shareholders, the reform aims to provide greater protection of the company’s interests and also of the rights of minority shareholders. Furthermore, it aims to avoid abuse of the shareholders’ right to challenge in court, corporate resolutions for personal purposes. With regards to the rights of minority shareholders, the new Act lowers the shareholding percentage required for the exercise of some rights to 3% (before it was 5%) and it sets one thousand as the maximum number of shares that a company’s Articles of Association can require of shareholders to be able to attend a general meeting. The reform also seeks to ensure that shareholders vote separately decisions that are not related among them at the general meetings.

The new Act reforms how conflicts of interest are dealt with legally. There are two significant aspects to this change; firstly, it establishes a clause which prohibits voting in serious cases of conflict of interest and secondly, it establishes a presumption of prejudice to the corporate interest in cases where the agreement has been adopted with the determining vote of the shareholder or member of the board who incurs in a conflict of interest. 

The right to information under the principle of good faith is amended under the new Act and a differentiation is made between the legal consequences of information solicited prior to the general meeting and information solicited during the general meeting. The purpose of this is to prevent the misuse of the information that is requested. The reform introduces significant developments in relation to the challenging of resolutions, notably with regards to the time limit for raising such challenges which is limited to one year (three months for listed companies). In order to avoid abuse of the law, only shareholders with minority participation of 1% for non-listed companies and of 0.1% for listed companies may raise challenges. The Act also amplifies the concept of the corporate interest and now covers resolutions being sought in situations where the majority shareholders impose agreements by abusive means.

Regarding the Board of Directors, the reform includes a comprehensive regulation of the duty of care and duty of loyalty in relation to the liability of Directors. The new Act regulates in detail the functioning of the Board and, in this sense, includes the requirement that the Board meets quarterly, increases its delegated powers (including in matters of special importance in listed companies and regarding responsibility in the field of corporate management), and establishes the need for the roles of the CEO or the Managing Director with executive functions to be reflected in a contract approved by the Board of Directors.

In listed companies, the functions of the Chairman of the Board are expressly stated, although they may be expanded by statute and regulations. It is stipulated that where the President has the status of an Executive Director, the Board of Directors must appoint an independent coordinating Director who will act as counterweight. The functions of the Secretary of the Board of Directors are also defined and these roles are limited to a maximum tenure of four years. The Board may also constitute specialised Committees. There is a legal obligation to have an audit Committee and one, or two separate Committees for appointment and remuneration. In both cases, the Committee shall consist only of non-executives.

The reform introduces substantial developments in the remuneration of Directors, applicable to all types of companies (SL and SA, listed or non-listed). The maximum amount of annual remuneration of each single Director or the Board of Directors will be approved at the General Meeting, taking into consideration the current economic situation and market standards. The Board of Directors then distributes the remuneration among its members. When a Director also renders services for the Company, as it is usual in the case of the CEO, an agreement regarding these services and its remuneration should be entered between the Director and the Company, and he cannot attend the meeting nor discuss or vote this matter. In the case of the CEO, the agreement should be attached to the Minute that approves his appointment, and it is forbidden that he receives any remuneration not expressly included in the agreement.

In summary, all Spanish companies are affected by these new rules:

-          Acquisition, transfer or contribution to another company of core assets should be approved by the General Meeting. Core assets are considered those valued 25% or more of the last approved balance sheet.

-          The Board of Directors should meet quarterly.

-          The duties, remuneration and any kind of compensation of the CEO should be contained in a written agreement approved by the Board of Directors and attached to the correspondent minute.

-          When the Director of a company is another company, the individual who represents this second company is subject to the same obligations than individual Directors and is jointly liable with the company.