The remuneration of the Administrators in capital companies
The correct documentation of the remuneration system for company administrators is a relevant issue. It is for the corporate directors and also for the company itself due to its tax repercussions.
The members of the administrative body must meet certain formal requirements in order to receive emoluments from the company. We will refer to them in this exhibition.
If they do not comply with these requirements, they could be forced by the company or its partners to repay irregular charges. Bearing in mind, furthermore, that if there had been several administrators receiving these remunerations, all of them would be jointly and severally liable for the return of the full amounts paid against the legally established remuneration system.
Although there is consent among the partners, it is equally important for the company that the remuneration paid to its administrators have formal support. Only payments that are legitimate may be counted as deductible expenses in corporation tax.
It can constitute a double damage for the partners that the company’s assets are diminished by unduly paid remuneration to the administrators and that the tax burden reduces the benefit even more< /strong> by not being able to deduct such expenses in the liquidation of the corporation tax.
It is evident that it is of interest to have in each company a clear and secure remuneration system for administrators; that does not offer risks of claims from minority partners or tax inspections.
In this matter, we must take into account the regulatory change introduced by the Law 31/2014 of December 3 in articles 217 and 249 of the Companies Law of Capital (LSC).
This modification gave rise to a doctrine in the General Directorate of Registries and Notaries (DGRN) that has been disavowed by the Supreme Court. In its judgment of 02/26/2018, the High Court has clarified that the position of administrator can only be remunerated if the statutes so contemplate; the passage to the interpretation of the DGRN has been closed (resolution of 06/17/2016) that had declared the possibility of remunerating the CEOs without the support of the statutes.
Differences in administrator remuneration
It is convenient to differentiate between the remuneration of administrators who remunerate the performance of their position and the perceptions for other different concepts.
Remuneration for holding the position of administrator
The Law is based on the general principle that the position of administrator is free. It is presumed that said position is free unless otherwise established in the bylaws.
Therefore, the first requirement to enable such charges is that the remuneration system for administrators be recognized and detailed in the bylaws.
Art. 217.2 LSC refers by way of example to various modalities (fixed assignment, profit sharing, variables, …) being possible to validly adopt any other.
For the payment of their emoluments to the administrators, in unlisted companies, the general meeting must set the maximum amount to be distributed among all of them . Said determination shall remain in effect as long as the board does not approve its modification. Therefore, the statutory provision is not enough. The general meeting of partners has control of this expense and must establish by agreement, adopted with the due formalities, the maximum amount that the members of its administrative body can receive. The general meeting may also issue instructions to the administrative body or submit to its authorization the decisions it adopts regarding the remuneration of directors.
Finally, when corporate management is entrusted to a board of directors, it is said board that has the power to set the specific remuneration to be received by each of its members.
The Law (art. 249.3) expressly establishes that the remuneration of CEOs must necessarily be agreed in a contract. This must be approved by the council with the favorable vote of two thirds of the votes, and the interested party must refrain from attending the deliberation and from participating in the vote. Although it is the responsibility of the board to set the remuneration of the CEOs, the contract must be in accordance with the remuneration policy approved by the general meeting.
Remuneration of administrators for other different activities
The remuneration mentioned in the preceding section is the consideration for the exercise of deliberative, management and executive functions in the company. All of them will be under the control of the statutes, the general meeting and the board of directors if this is the type of administration established in the company.
But the administrators of a company can legally receive other remuneration. It may happen that they carry out work typical of any job position, unrelated to the management work of the company. And that they provide professional or other services as if they were a third party. For the performance of these tasks, the company can pay compensation, either in the form of a payroll or an invoice.
If the services provided by the administrators correspond to the scope of a special senior management employment contract, their remuneration will be considered as inherent to the exercise of their position as administrator. Therefore, the guidelines referred to in the previous section will be applicable. Different is the case of works typical of an ordinary labor contract.
Regarding the emoluments outside the management function, it should be pointed out:
- They are not required to be included in the bylaws.
- In limited companies, there must be an agreement from the general meeting approving the provision of these services and their economic remuneration.
- In unlisted public limited companies, the resolution of the general meeting will only be mandatory if the amount exceeds ten percent of the corporate assets. If this quota is not exceeded, an agreement adopted by the board of directors will suffice.
The remuneration of Directors in capital companies