LESSON 10: GOVERNING BODIES SA/SRL

GENERAL MEETING.

Arts. 159-208 LSC.

1.- General ideas.

2.- There are different types of meetings
3.-Calling for the meeting
4.- Notice
5.-Universal meeting
6.- The right to attend and vote
7.- Proxies
8.- The chairman of the meeting
9.- Attendance list
10.- Quorum for the constitution of the meeting in SA
11.- Rights of shareholders and partners at the meeting: the right of
information
12.- Decisions
13.- Minute
14.- Challenge of Resolutions

1.- General ideas.

In theory, the ultimate control over a company’s business lies with the members
in general meeting. The general meeting in capital companies is the supreme governing
body of the company. Art. 159 provides that “assembled in an annual general meeting,
shall adopt decisions on the matters whose competence is reserved to the general
meeting by majority vote as defined by law or in the by-law” All shareholders and
partners shall be bound by the resolutions passed at a general meeting.

The meeting can deliberate over all those matters of its competence. Art. 160
enumerates the matters of jurisdiction the meeting has. These are: a) Approval of annual
financial statements, distribution of earnings and the approval of corporate governance;
b) Appointment and dismissal of directors, liquidators and, when necessary, account
auditors and the institution of liability action against any of these persons; c)
Amendments to by-laws; d) Capital increase and reduction; e) Removal or limitation of
pre-emptive or preferential subscription rights; f) Acquisition, disposal or transfer to
another company, of any essential assets. Assets are considered essential when the sum
of the transaction exceeds twenty-five percent of the share value shown in the latest
approved balance sheet; g) Conversion, merger, spin-off or global assignment of assets
and liabilities and transfer of registered office abroad; h) Dissolving the company; i)
Approval of the final liquidation balance sheet; j) Any other matters stipulated by the
law or the by-laws.

The meeting cannot interfere in the activities charged to other bodies, such as the
representation of the company. However, art. 161 establishes that the meeting may issue
instructions to the management body and submit, for their authorisation, the adoption by
afore mentioned body of decisions and agreements about certain management issues.
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 In the frame of its faculties, it is important to remark that the meeting cannot
approve resolutions against the by-laws, but it can amend them; the meeting is obliged
by the mandatory rules included in the LSC; cannot adopt resolutions against share or
stakeholders’ rights nor imposes new obligations if the share or stakeholders have not
agreed on them; in the same sense, the meeting cannot adopt resolutions that can be
harmful to the company to the benefit of one or more shareholders or third parties.

2 There are different types of meetings

Art 163 and 166 provides that general meeting may be either ordinary or
extraordinary.

The annual ordinary meeting must be held within the first six months of each
financial year with the main purpose of approving the general accounts and review the
corporation’s management. The basic characteristics are:

- the time in which it must be held (6 months after the closing of the fiscal year)
and

- the topics to be discussed: the ordinary activities of the company. In the

ordinary meeting the financial statements shall be approved as well as proposed
distribution of the prior year earnings.

Extraordinary general meeting is a meeting other than the Annual General

Meeting (art. 165). The extraordinary meeting can be called by the Company directors if
and when they consider it in the company’s interests to do so. By the company’s
directors when requested by shareholders representing at least 5% shared capital. By a
Court if the directors disregard the notification referred to above.

Class meetings: these are not general meetings but only for those actions with
special rights that discuss together their specific problems within the general
organization of the company.

3 Calling for the meeting

The shareholders and partners are called to attend the meeting by the directors.
Directors have the faculty and the duty to convene meeting following arts. 166-171.

In the case of an Annual meeting, Directors shall call the within the 6 months
after the end of the prior financial year. If Directors do not call for annual meeting, it
may be called by the court, upon petition by the shareholders or partners.

The Directors can call an extraordinary meeting whenever they deem it to be in

the interests of the corporation. The Directors shall also call an extraordinary meeting
upon the request of shareholders or partners holding at least 5% capital stock.
Shareholders us in their request state the matters to be discussed.

If the shareholders meeting is not called within the legal terms, the members of
the company can request the Judge of First Instance, who will call for the meeting.

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4 Notice

Proper and adequate notice must be given to all those who are entitled to attend
any meeting. The precise nature of the notice is governed by art. 173-174.

The notice shall be published in advance in the Official Gazette (BORM) and in
a major daily newspaper in circulation in the province where the company has its
registered office, at least 1 month for SA and 15 days for SRL of the date set for the
meeting. The by-laws may provide for convening general meetings by any written,
individually addressed notice forwarded in a manner that guarantees receipt by all the
partners or shareholders at the addresses designated thereby for that purpose or at the
addresses listed in the company’s files.

If the share or stakeholders do not attend the first call for the meeting, a second
call may be done.
In SA the announcement of the second call can be done together with the first call. In
this case, between the first and second call there must be a minimum period of 24 hours in SA.

The notice shall include the date, place and time of the meeting and the adequate
content of the agenda. That means that all the matters to be discussed should be clearly
expressed in the notice.

The meeting will take place in the town where the company has its registered
office.

It is usually the prerogative of the directors to decide which motions will be put
to the company in the general meeting. Members, however, have the right to request an
additional complement on the notice convening the Shareholders’ meeting in order to
include one or more matters in the agenda.

5 Universal meeting

Regardless of the type of the meeting (ordinary or extraordinary) the formal call
requirements need not be followed if shareholders or partners representing 100% capital
are present and agree unanimously to hold a meeting. Such meeting is called universal
meeting in order to indicate that all the shareholders or partners are present to discuss
whatever matter concerning the company (art.178).

6 The right to attend and vote

Following art. 93 c) all shareholders and partners have the right to attend and
vote at the meeting.

Special rules are set for SA. In the first place, the bylaws may condition the
right of attendance upon proof of shareholders’ status. The status is proved when the
shares have been entered in the register five days prior in which the meeting is going to
be held. In case of bearer shares, the holders should have made the deposit of the shares
instead of registered them. In a different sense, the by-laws may require, in order to
attend the meeting, that the shareholders hold a minimum number of shares, never over
1/1000 of the capital stock. Grouping of shares are admitted.). In addition, if the by-
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laws allow remote attendance at general meetings by electronic methods the company
shall ensure that the meeting is conducted in an orderly fashion and shareholders can
exercise their rights.

Directors shall attend the shareholders meeting. There are also other persons that
can be authorized to attend the meeting if required, such as mangers or technical
managers.

Virtual attendance is recognized in art. 182 in the case this possibility is included
in the bylaws.

7 Proxies

Partners and shareholders may be represented at the general meeting.

A shareholder may be represented at a shareholders’ meeting by any person,

who need not be a shareholder unless the bylaws provide otherwise (art. 184) the proxy
must be in writing or using certain means of long-distance communication, and specific
for each meeting.

A shareholder may cast his vote by mail, e-mail or using any other means of
long-distance communication as provided for in the bylaws and will then be considered
to be present for the purpose of establishing the quorum for the meeting.

Special rules regulate the public solicitation of proxies. Proxies are deemed to
have been solicited publicly if one person represents more than three shareholders.

Partners may only be represented at general meetings by their spouses,

ascendants or descendants, another partner or by a person holding a general power of
attorney by virtue of a public document vesting him/her with powers to administer all
the assets that the principal owns on Spanish soil. Representation by other persons may
be authorised in the by-laws

8 The chairman of the meeting

The meeting shall be presided by the person appointed in the by-laws. If there is
no such provision, the chairperson of the Board of Directors shall preside over the
meeting, or, in his absence the person elected by partners or shareholders present. In
case the meeting had been called by the Judge, it is up to the Judge to appoint the person
to preside the meeting (art. 191 LSC).

The chairman conducts the meeting and must preserve order and ensure that it
complies with the provisions of the companies’ legislation. He must also decide about
the information shareholders have asked for.

9 Attendance list

Before entering to discuss the agenda, a list of attendants shall be prepared. The
list shall include the names of the shareholders/parterns at the meeting, either personally
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or by representation, the number of shares or stakes they hold in property or by
representation, including the amount of capital present in the meeting and the amount of
corresponding voting right. In SRL, the attendance list must necessarily be included in
the minutes (art. 192 LSC).

10 Quorum for the constitution of the meeting

The quorum is the minimum number of persons whose presence is required for
the transaction of business in any meeting. It is important to notice that the celebration
of the meeting in SRL does not require quorum at all. However, it is reasonable to
think that it is necessary the attendance of partners in enough number to adopt the
resolutions. Instead, the law establishes special rules for the valid adoption of the
decisions.

In SA, the quorum for a shareholders meeting, al the first call exists when the
shareholders present or represented at the meeting own at least 25% of the voting capital
stock (art.193). If a second call has to be made, because there was no quorum at the first
call) the meeting is deemed to be legally convened regardless of the percentage of
capital stock present o represented at the meeting. A Company’s bylaws may set special
call and quorum requirements for shareholders’ meeting. However, the special quorum
requirements cannot be lower than the legal requirements.

Special quorums are required by law for the adoption of resolutions on certain
matters (art.194) e.g. debenture issuance, capital increase or reduction, any
transformation, merger or spin-off of the company and, in general, for the adoption of
resolutions amending the bylaws. In such cases, the quorum required at the first call
exists when the shareholders present or represented at the meeting own at least fifty
percent (50%) of the subscribed voting capital stock. At the second call, a quorum will
exist if at least twenty-five percent (25%) of the voting capital stock is present or
represented at the meeting. However, if a meeting subject to a special quorum
requirement is held on second call with less than fifty percent (50%) of the voting
capital stock present or represented, then a special voting rule stipulates that resolutions
may only be validly adopted by the ‘aye’ votes of shareholders owning at least two-
thirds of the capital stock present or represented at the meeting (art. 201).

11 Rights of shareholders and partners at the meeting: the right to information

Shareholders and partners had mainly the right to take part in the discussion of
the matters included in the agenda and to vote. All the matters included in the agenda
should be discussed, and on the contrary a matter which have not been included cannot
be discussed and vote.

It is of the maximum importance for shareholders and partners the right to be

informed. Rules are different in SA and SRL

In SA shareholders may request any reports or clarifications they consider

important. The y can do it in writing prior to the meeting or orally at the meeting. The
Directors must provide such information unless if the disclosure of the information

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would be detrimental to corporate interests. In any case information must be disclosure
if at least 25% of the stock capital requires that information should be given. There are
special rules for listed companies.

The right to information may be exercised before the meeting. In this sense, the
notice calling the meeting shall make clear that shareholders have the right to exam both
the full text proposed or other related documents in the corporation office. In addition,
shareholders are entitled to have the documents sent free of charge before the meeting.

In SRL, partners may request in writing prior to the general meeting, or verbally
during the meeting, any reports or clarification that they deem necessary in connection
with items on the agenda. Directors are obliged to provide such reports or clarification
either verbally or in writing, except where, in the governing body’s opinion, disclosing
such information may be detrimental to the company’s interests. Information may not
be withheld when requested by partners representing at least twenty-five per cent of the
capital (art. 196 LSC).

12 Decisions

In SA and SRL the members decide by majority vote all those matters within the
competence of the meeting. The bylaws can establish a higher majority, but it won’t be
licit a clause imposing unanimity. In other sense, it is important to notice that partners
and shareholders may be in a conflict of interest with the company. In such cases, art.
190 LSC establishes the prohibition of exercising the right to vote for partners or
shareholders.

Majority rules in SA. Decisions shall be adopted by simple majority of the

votes of the shareholders present or represented by proxy in the general meeting. An
agreement is understood to be adopted once more votes are obtained in favour of the of
the present or represented share capital than against. Agreements referred to in article
194 shall require an absolute majority of over fifty percent of the present or proxy share
capital. However, a favourable vote of two-thirds majority of the present share capital or
represented by proxy at the general meeting shall be required when, at second call, at
least twenty-five but less than fifty percent of the subscribed share capital with voting
rights is in attendance (art. 201 LSC). Grouping for voting is licit.

Votes can be expressed in any manner as far it is enough to make clear the sense
of vote. A resolution can be decided upon a show of hands or in any other way, for
example in a poll. Recently, the law has established the possibility to vote by mail, e
mail or using any other means of long-distance communication as provided for in the
bylaws, and will then be considered to be present for the purpose of establishing the
quorum of the meeting,

Majority rules in SRL (art.198-200 LSC). Generally, corporate resolutions

shall be adopted by a plurality of valid votes cast, provided they represent at least one-
third of the votes pertaining to the stakes into which the capital is divided. Blank ballots
shall not be counted. For decisions on important matters, qualified majority is
requested: a) Increases or reductions in capital and amendments to the by-laws shall
require ½ capital; b) A majority of at 2/3 of the votes shall be required to: authorise
directors to engage in an activity that is the same as or similar or complementary to the
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company’s corporate purpose; cancel or limit pre-emptive rights in capital increases;
convert, merge, spin off or globally assign assets and liabilities; transfer the registered
office abroad; or exclude partners.

For all or some items, the by-laws may require a higher percentage of aye votes
than established by law, but not unanimity.

13 Minute

A minute of the meeting is required. It is an important document as it is regarded

as evidence of the proceedings. Minutes are legally binding if they are approved by the
meeting itself or within fifteen days by the chairperson and two referees (art.202).

A Public Notary can be called by the managers. The notary’s record shall be
regarded as the minutes of the meeting (art.203).

14 Challenge of Resolutions

Resolutions can be unlawful, contrary to the by-laws or harmful to the interests

of the corporation to the benefit of one or more shareholders or parties (art. 204). These
resolutions may be challenged by shareholders, directors and any third party who can
show a legitimate interest with the requirements of art. 204, 205 and 206.