Statutory clause authorizing the company to take out civil liability insurance for its directors

A statutory clause authorizing the company to take out civil liability insurance (D&O) for its directors is not sufficient to clearly and bindingly integrate the remuneration system. To be registrable, such a provision must establish the insurance as part of the remuneration regime with a determined and mandatory nature, in accordance with the requirements of Article 217 of the Spanish Capital Companies Act (LSC).

The Directorate General for Legal Security and Public Faith (DGSJFP), in its resolution of May 13, 2025, in its resolution dated May 13, 2025, analyzed the case of a sole shareholder company that amended its bylaws regarding the remuneration regime of its directors. Specifically, it incorporated the following wording in a statutory clause: “The Company is authorized to contract civil liability insurance for the directors.”

The Registrar of Companies denied the registration of this clause, understanding that civil liability insurance constitutes a form of remuneration and that, in this case, the requirement of being expressly stated in the bylaws was not met. Instead, it was left to the discretion of the general meeting or the board itself, which holds the contracting powers, thereby violating Article 217 LSC and the applicable registration doctrine.

The criterion is based on the fact that D&O insurance, when paid for by the company and directly benefiting the directors, constitutes remuneration in kind. As such, its provision cannot be left to the discretion of the company or its bodies, as this undermines corporate control and the legally required transparency. Therefore, a clause that merely authorizes the contracting—without establishing a concrete obligation or defining the essential elements of the insurance—is incompatible with the legal requirement of clarity, foreseeability, and precision in the remuneration regime.

However, the DGSJFP distinguishes the treatment applicable to directors with executive functions. In such cases, Article 249 LSC allows their remuneration, including the insurance, to be regulated by an individual contract with the company, provided there is a general statutory authorization. This approach reconciles the proper protection of shareholders with practical needs, allowing the company to choose among the remuneration concepts provided for in the bylaws.

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