This article aims to address some of the common questions and concerns faced by English companies and businesses regarding the appointment of non-Spain based directors in their Spanish subsidiaries.
1. Can a foreign individual or company be appointed as a director of a Spanish company?
Yes, there is no legal rule in Spain that prohibits a foreign individual or a foreign company (or other sort of body corporate) from serving as a director of a Spanish company.
If the appointed director is a body corporate (corporate director), it must designate a natural person that will act as representative authorised to perform and fulfil the duties associated with the directorship. This natural person appointed as representative is subject to the same duties and liabilities as directors (such duties and liabilities are outlined in question 6).
2. Can all the directors be based outside of Spain?
Yes, a Spanish company can appoint exclusively foreign directors who are based outside of Spain. However, it’s important to note that Spanish law often requires certain resolutions made by members and/or directors (such as share capital increases or changes to articles of association) to be notarized before a Spanish notary. Such notarization is a very formal process that requires the physical attendance of an individual authorised to notarize such resolutions. Therefore, it is advisable to have at least one person with this authority based in Spain.
3. Are there any special requirements to becoming a director of a Spanish company?
Directors of Spanish companies must comply with the usual standard requirements, such as being of legal age and not being subject to any legal incompatibilities (e.g. disqualification due to insolvency proceedings, conviction for certain crimes, etc.). Moreover, each director must obtain a Spanish tax code known as “N.I.F.” (for foreign individuals, also known as “N.I.E.”). The same requirement applies to any foreign individual acting as representative of a corporate director.
4. What is the process for appointing a foreign director in Spain?
Appointing a foreign director in Spain is not a very straightforward process and should be tailored to the specific circumstances of the Spanish company and its members. Typically, the process of appointing a foreign individual as a director of a Spanish Company involves the following elements:
- Shareholders’ resolution. The shareholders (or sole shareholder) of the Spanish company will adopt the resolution to appoint the foreign director.
- Acceptance. The appointed foreign director will then accept the appointment. The appointment is considered effective from that moment even though still not registered with the relevant Commercial Registry.
- Certificate. A certificate of the resolution appointing the foreign director is issued and signed in wet ink. The persons responsible for signing the certificate will depend on the circumstances of the Spanish company. The signatures included in the certificate must be authenticated ether by an English notary (apostille required) or by the Spanish notary.
- Limited power of attorney (PoA). The foreign director will usually grant a limited PoA in favour of Spain-based individuals (typically Spanish lawyers or paralegals, but not necessarily) authorising them to deal with the application and obtention of the necessary Spanish tax code. If the power of attorney is drafted in doble language English – Spanish this will avoid the need of an official translation of the PoA.
- Spanish Tax Code. The individual authorised in the limited PoA will appear before the Spanish tax authorities to apply for and obtain the Spanish Tax Code. This requires an appointment which is advisable to secure as soon as possible to avoid delays.
- Public deed (optional). Appointments of directors are usually notarized using the certificate described above. Such notarization would require the physical attendance of an individual having authority to notarize directors / shareholders’ resolutions (as anticipated in question 2 above). This notarization, however, is not mandatory for resolutions consisting in the appointment (or removal) of directors, which can be registered by simply submitting the certificate of the resolutions to the relevant Commercial Registry.
- Registration. The last step is registering the appointment with the relevant Commercial Registry. The registration process typically takes between two and three weeks.
As previously mentioned, the above description provides a general overview of the typical process involved in appointing a foreign individual as a director of a Spanish company. However, it is important to note that the specific steps may vary depending on the circumstances of the Spanish company. Factors such as the company’s management structure, the provisions included in the articles of association, availability of individuals required to sign the certificate of the resolution and grant PoAs, the Spanish notary’s capacity to authenticate signatures by comparison with other documents, must be considered to determine the best course of action in terms of both time and costs. Furthermore, if the foreign director to be appointed is another company or body corporate, additional steps and requirements may apply.
5. What are the duties of directors in Spanish companies?
The general duties applicable to any director of a Spanish company are codified in Chapter III of Title VI of the Royal Legislative Decree 1/2010, of 2 July, approving the Consolidated Text of the Spanish Companies Act (‘The Spanish Companies Act’). Such duties can be summarised as follows:
- Standard of due diligence. The directors must act with the diligence of an orderly businessperson, which typically involves, among others, dedicating appropriate time, establishing management and control measures, and seeking relevant information about the company’s situation. Regarding strategic and business decisions, pursuant to article 226 of the Spanish Companies Act the standard of diligence of an orderly businessperson shall be deemed fulfilled when the director has acted in good faith, without personal interest in the matter at hand, with sufficient information, and in accordance with an appropriate decision-making process (this rule, is known as the ‘business judgement rule’).
- Duty of loyalty. Directors must also act as loyal representatives, acting in good faith and in the best interest of the company. This duty encompasses:
- Using their powers solely for their intended purpose
- Maintaining confidentiality of information accessed during their tenure, even after they cease to be directors
- Avoiding participation in discussions and votes related to agreements and decisions where they or a related person may have a direct or indirect conflict of interest
- Acting independently and with freedom of opinion and judgement, free from third-party instructions or influence
- Taking necessary measures to prevent conflicts with the company’s interests.
6. How can directors of Spanish companies protect themselves from liability?
A director may be held liable to the Spanish company, its shareholders and creditors, for damages arising from negligent or intentional acts or omissions that breach the aforementioned duties (as well as the articles of associations or the law). If the act or omission entails a breach of the law or the articles of association, fault is presumed. Although there is no way to shield a director against liability completely, the following measures can help mitigate risk:
- Document decisions and reasons. It is essential that directors keep a record of their decision and management process and the rationale behind their actions. When the Spanish company is managed by a board, it should hold at last one meeting per quarter, as required by article 245.3 of the Spanish Companies Act.
- Authorisation. A director should request authorisation from the shareholders prior to carry out actions or transactions that could be seen as contravening the duty of loyalty or be regarded as a potential conflict of interest. Authorisation is mandatory for transactions falling under the legal definition of “essential assets” or meeting certain requirements. Even if actions or transactions have already been executed, directors can seek ratification from shareholders. However, according to article 236.2 of the Spanish Companies Act, authorisation or ratification does not exempt or mitigate directors’ liability (although shareholders voting in favour of the particular matter may be precluded from bringing subsequent claims).
- Monitoring financial situation. It is also crucial that directors of Spanish companies act quickly and seek expert advice if the Spanish company faces financial difficulties to avoid being held liable for any shortfall after the company’s liquidation. Attention should be given to the net equity level, which should not fall below half of the nominal value of the share capital, as specified in article 363.1(e) of the Spanish Companies Act.
- Corporate policies and control systems. Developing and implementing corporate policies, compliance measures, and other control systems will help to ensure that the Spanish company complies with applicable laws. The absence of such policies or measures could be perceived as a lack of due diligence on the part of directors and, in some cases, a breach of the law.
- Directors’ and Officers’ (D&O) insurance. Most Spanish companies take out D&O insurance policies to provide some coverage for their directors. Such policies, and their exclusions section specifically, should be thoroughly reviewed. It is important to note that claims in respect of director’s fraudulent or intentional acts for breach of the duty of loyalty will be excluded.