Requirements for the appointment of non-remunerated executive directors

Judgment no. 311/2024 of the Madrid Provincial Court of 4 October 2024 analyses the requirements of article 249.3 of the LSC on the appointment of unpaid managing directors in a family company, establishing that the absence of a contract does not invalidate the appointments of the managing directors, as they do not receive remuneration for their functions.

In this case, the resolutions of the board of directors appointing three managing directors without the conclusion of the contract provided for in the aforementioned article were challenged. This provision establishes that, for the appointment of a managing director, the company must enter into a contract with the managing director, approved by the board of directors with the favourable vote of at least two thirds of its members.

The Provincial Court rejected the interpretation of the Directorate General for Legal Certainty and Public Faith contained in resolutions of 2018, which defended the need to enter into the contract regardless of whether the CEO’s position was remunerated. Instead, the Provincial Court considered that the requirement of such a contract is intended to ensure the proper documentation and approval of the remuneration regime of the managing directors for the performance of additional executive functions.

To justify this conclusion, the Court relied on the 2013 Study of the Committee of Experts on Corporate Governance, the origin of the reform introduced by Law 31/2014. According to this study, sections 3 and 4 of article 249 LSC were incorporated to specifically regulate the remuneration of directors who perform executive functions, highlighting that the signing of the contract responds exclusively to this purpose.

The Court concluded that, when the position of managing director is free of charge, the requirement to sign a contract is not justified, as its purpose is to regulate the additional remuneration associated with the exercise of executive functions. Therefore, in the case under analysis, the absence of a contract does not invalidate the appointments of the managing directors, as they do not receive remuneration for their functions.