Startups – The governing bodies of a company
We address this article to businessmen, partners and entrepreneurs who have launched a startup or company of any nature. I intend with this information to solve the basic questions that our clients ask us most frequently.
Many of these issues are new to new entrepreneurs, and often scare those who venture into creating a startup, they will be the daily bread when the company begins to walk. For this reason, it is important to know how to distinguish the functions of each body and its powers in decision-making.
Bodies that make up the Management of a Startup
We start with the most basic, which includes the bodies in charge of managing the company, making fundamental decisions and >establish the rules that regulate internal issues that affect all partners. These bodies are the General Meeting and the Board of Directors.
Establishing an easily understandable simile, the Board of Directors is for a Startup or company what a government is for a country. Each of its members will be administrators or directors of the company and will be headed by the Chief Executive Officer, also known as CEO by the acronym in English “Chief Executive Officer”.
Although it might be surprising, directors do not necessarily have to be partners of the company. Normally this does not happen in startups or newly created companies, but it does in larger companies.
If we said that the Board of Directors is the government of a company, the General Meeting would be the closest thing to Parliament. It is the body that represents all the partners, where the essential decisions of the company are voted on, the rules of the game contained in the statutes and where the general accounts or the management of the Board of Directors are approved.
We detail below the essential functions of each of these organs:
The Board of Directors of a Startup
Company management varies based on the number of administrators. If there is only one administrator, this will be called sole administrator of the company.
This figure is common in the initial phase of a company or startup when there is only one entrepreneur. When there is more than one entrepreneur, it is common for all of them to require an administrator position.
The Board of Directors will not be constituted until there is a minimum of three administrators, otherwise the administration will remain in hands of the single administrator or two administrators.
The composition of the Council may vary, depending on the art. 242 LSC, and the bylaws (internal rules of the company) will establish the number of administrators that make up the Board of Directors, and may reach up to 12 in the case of limited or superior companies in the case of public limited companies.
The statutes will also be in charge of establishing the organization and functioning regime of the Council in the S.L., including the way of deliberating and adopting the Council’s agreements. According to art. 243 LCS shall meet at least once every three months.
It is common for investors (business angels, venture capital, etc.) to demand a seat on the Board of Directors.
Functions of the Board of Directors
There are various functions of the Board that encompass the governance of the company, the most relevant of which are listed below:
- Establish general company policies and strategies, whether commercial, production, internal organization, human resources, etc.
- Prepare the annual accounts that will later be approved at the General Meeting.
- Appoint or dismiss the CEOs, and establish their remuneration.
- Call the General Meeting and draw up the agenda.
- Make decisions that affect the shares or shares of the company itself.
Appointment of the CEO
It will not be mandatory for there to be a CEO, but when a member of the Board of Directors is appointed as such or executive functions are attributed to them by virtue of another title, it will be necessary to enter into a contract between the new CEO and the company (art. 249.3 LCS).
This decision must have been previously agreed upon by the Council by a favorable vote of two thirds of its members.
The General Meeting of a Startup
The Board is the representative body of the company. All partners will have the right to attend the Meeting and request the information, documentation or clarification necessary to know the economic and patrimonial situation of the company, as well as any other issue that will be the subject of debate and voting.
It is the so-called right to information that will serve to preserve due knowledge on the part of the partners that allows them to cast an informed vote.
It must meet at least once a year to approve the annual accounts.
The Board may issue instructions to the administrators / Board of Directors or submit the adoption of their decisions for authorization.
Decisions will be approved by majority system, requiring the favorable vote of the corresponding quota, as determined by law or bylaws.
Functions of the General Meeting
The essential functions of the General Meeting are included in art. 160 LSC, among which are the following:
- Approval of the annual accounts that have been previously prepared by the Administrators or Counselors in the governing body.
- Approval of corporate management carried out by the Administrators or by the Board of Directors.
- Appointment of administrators, liquidators or auditors.
- Modification of the bylaws.
- Agree capital increases or reductions.
- Abolish or limit the preferential subscription right. This right supposes the priority of the current partners to acquire the new shares issued in a capital increase. It must be taken into account that if the partners do not acquire part of the new shares, their percentage will be reduced.
- Agree on the transformation, merger and spin-off of the company, the transfer of domicile abroad, or the assignment of assets or liabilities.
- Agree the dissolution of the company.
Partners can challenge the agreements adopted, provided they meet the legal requirements. For more information you can consult our article Challenging social agreements of the General Meeting< /strong>