According to the Capital Companies Act, the office of director is free of charge unless the articles of association establish otherwise, in which case they must determine the remuneration system.
The maximum amount of the directors’ remuneration must be approved by the general meeting and will be established for all the directors, which will be distributed by agreement among them – unless the general meeting establishes otherwise.
According to the Capital Companies Act, the office of director is free of charge unless the articles of association establish otherwise, in which case they must determine the remuneration system. This is without prejudice to the fact that the exact amount of the remuneration is then determined each year by the General Meeting, based on this system.
We remind you that, according to the Capital Companies Act, the position of director is free of charge unless the articles of association establish otherwise. This regulation is based on the logic of the company’s interests, i.e., it is really in the interests of the company and in the best interests of the company for the position of director to be free of charge.
The reality is that the general rule is the exception, as is often the case in law, and most company directors receive remuneration for their position, as this is provided for in the company’s articles of association.
Maximum amount of remuneration
The maximum amount of the directors’ remuneration must be approved by the general meeting and will be established for all the directors, which will be distributed by agreement among them – unless the general meeting establishes otherwise. If there is a board of directors, the board will determine the distribution on the basis of the functions and responsibilities assumed by each of the directors.
It is possible to keep this remuneration in force for several financial years by adding a clause at the end of the agreement, for example, the following: The amount (the established remuneration) shall remain in force in successive financial years until the general meeting resolves to amend it.
In addition to this limitation per general meeting, the law establishes an abstract limitation whereby the remuneration must be proportionate to the importance of the company and its economic situation at any given time, always in comparison with the market standards of similar companies. Furthermore, the remuneration system chosen must be geared to the sustainability of the company and must incorporate the necessary safeguards to avoid excessive risk-taking.
The chief executive officer
If there is a managing director, a contract must be concluded with the company, which must be approved by 2/3 of the directors, and the person concerned must abstain from deliberation and voting. The contract must be included in the minutes of the meeting or – if necessary for reasons of confidentiality – be made public and kept in the company’s archives, without being attached to the minutes book. However, to be properly registered, it must be recorded as having been signed.
Remuneration by way of a share in the company’s profits or linked to the company’s shares
The possibility of a system of remuneration by means of a share in the company’s profits or linked to the company’s shares is also provided for. In both cases the articles of association must regulate and recognize this system. The maximum percentage of profits constituting shareholder remuneration is set by the general meeting, and in limited companies this may never exceed 10% of the profits distributable to the shareholders.
In the case of share-linked remuneration, its application will require the agreement of the shareholders’ meeting, which must include the maximum number of shares that may be allocated in each financial year to this remuneration system, the exercise price or the system for calculating the exercise price of stock options, or the value of the shares that, where appropriate, is taken as a reference, and the term of the plan.
Translating the legal regulation into practice, the duty of loyalty has been greatly reinforced by the Law since its reform in 2014. This means that they may constitute an offence of unfair administration if objectively they are so high that they are capable of putting the company’s social interest at real or potential risk with their determination.
For further information, please consult Tax Consultancy