Company without directors

Nollendorfplatz - Ernst Ludwig Krichner

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Although the existence of a company without a duly formed management body, this is, without directors, is not possible when the company is incorporated, such situation may occur during the existence of the company. Therefore a company can be in a total or partial leaderless situation after its incorporation.

The regulations try to prevent companies from being in leaderless situations, but such regulations cannot force the managers to remain in its position. For this reason, it is contemplated the duty of the directors to call the general shareholders meeting when their resignation provokes a situation of total leaderless (a company without directors). Regarding this situation it can be seen the entry “Renuncia del administrador único en junta general sin nombramiento de Nuevo administrador”.

Once the Sole Director calls the general shareholders meeting to cover his vacancy resulting from his resignation, the duty to appoint a new director (or several) resides in the shareholders. In this general meeting the shareholders cannot force the outgoing director to remain in its position, even in case there is no agreement between the shareholders regarding the appointment of a new director.

In case the shareholders do not appoint a new director, there are two ways of resolving the total leaderless situation: (i) the shareholders held a universal general shareholders meeting appointing a new director, or (ii) any of the shareholders request the call of the general shareholders meeting to the Commercial Register or the Court Clerck of the registered office, with the purpose to cover the vacancy.

In relation to the total leaderless situation, it can be seen the Resolution of the DGRN of March 6, 2013. In this case the Sole Director of a company resigned during the general shareholders meeting, but the shareholders did not cover the vacancy. As a result, someone could consider the resignation was not correct and allege that the director should have called first the general meeting including the subject related to its substitution. However, the DGRN considered that the resignation was correct and that the shareholders could have filled the vacancy on that general meeting, hence, they decided voluntarily to not doing it.

From the aforementioned Resolution it is worth highlighting the following extract:

“3. In this case the resignation of the sole director has been fully effective, with the corresponding incorporation, as such resignation took place through its acceptance in the general shareholders meeting despite there was not agreed to appoint a new sole director. Therefore it was decided to maintain the management body without director. As a consequence, there is no call to execute by the sole director that has resigned and whose resignation has also been incorporated with the Mercantile Register. In this situation, the call made by the former director and the resolutions approved in such general meeting are null (Resolution of October 30, 2009, which admitted the possibility to call the general meeting by the director in fact with position legally expired, but tacitly extended in terms of article 145.1 of the Commercial Registry Regulations).
4. In the absence of a management body to call the general meeting, the provisions of article 171 of the Companies Act shall be applied, this is In the event of the death or dismissal of the sole director, all of the joint and several directors, one of the joint directors or the majority of the members of the board of directors, and in the absence of alternates, any partner may request the clerk of the commercial court or the registrar of companies in the registered office’s location, to convene a general meeting in order to appoint new directors, since in this case we are dealing with a sole director. This call can be replaced by a universal general shareholders meeting, in which it can be approved the remedy to the leaderless situation, because the absence of call is removed when all the shareholders decide to held a universal general meeting, but this requires the concurrence and acceptation of wills by the shareholders that are not given in the current case (Resolution of February 8, 2012).”