Contrary to the rules governing private limited companies, Portuguese company law allows a legal person to be appointed director of a public limited company. This solution involves specific characteristics that justify an analysis of the rights and obligations of the legal person as director of a public limited company.
The Commercial Companies Code expressly establishes the possibility of a legal person being appointed director of a public limited company, whether or not it is a shareholder of the company in which it will be a director and irrespective of the management and supervision structure adopted by the public limited company.
The legal person nominated director has two obligations: i) it must appoint a natural person with full legal capacity to hold the office in its name, ii) it is jointly and severally liable with the natural person that it appoints for that person’s actions when performing his or her duties.
The appointment of the natural person who will be a member of the board of directors is the only specific obligation that the law determines for the legal person as director.
The appointment obligation is both a power and a duty; its duration and how it is exercised may be stipulated in the company’s articles of association. However, when not provided for in the articles of association, it is generally accepted that the appointment must be made in writing (and addressed to the other members of the board) before the date of the first meeting of the board of directors (after appointment of the legal person as director), failing which the power to appoint shall expire with the legal person being possible accountable to the company. However, it is to be noted that the appointment of the legal person can only be registered when the appointment of the natural person who will effectively hold the office is registered at the same time.
Once appointed, it is the natural person who, factually and legally, enjoys rights, exercises powers and is subject to duties related to the position of director.
It is also with regard to the natural person appointed that the causes of expiry, lapse or suspension of director relationship that simultaneously lead to the permanent or temporary absence of the legal person as director are verified, according to certain legal theory.
As it is the natural person appointed who factually and legally holds the office of director, most authors defend that the permanent or temporary absence of the person appointed is passed on to the legal person making the appointment, the holder of the office, thus leading to a need for the common procedure of substitution of directors, in other words through calling on alternates, co-option, appointment by the supervisory board or audit committee or through the election of a new director.
Nevertheless, some defend that in the event of permanent or temporary absence of the appointed director, the legal person nominated director still has the power to appoint a new natural person to hold the position of director, basing this on the fact that it is the legal person that is nominated director and on the fact that this status is not altered by the actions carried out by the natural person appointed.
It is generally accepted that the legal person making the appointment may not unilaterally substitute at its own discretion the natural person it itself has appointed, since such substitution is a prerogative exclusive to the general meeting of the company in question.
As referred to above, company law also stipulates the joint and several liability of the legal person for any losses that may derive from the actions of the natural person it has appointed to hold the position of director.
Two conclusions can be reached from the imposition of joint and several liability of the legal person making the appointment: (i) the relationship established between the natural person and the legal person making the appointment is not a relationship of representation, since the latter does not act in the interest of the former (it acts in the interest of the company in question) nor in the implementation of its guidelines and/or instructions, since the legal person is not the “main” or sole person responsible for acts of administration of the person it has appointed and (ii) the choice of the person to hold the position of director must be a considered and careful decision given the possible financial implications of this choice on the financial situation of the legal person nominated director of a public limited company, even if these implications are no more than the counterpart of the possibility of specifically selecting who will be the director and the possible access to detailed information about the company’s activities.
However, it is to be noted that the general opinion is that this accountability of the legal person is only effective if the existence of culpa in elegendo is demonstrated, in other words, there is fault in the selection of the natural person appointed.
There are also authors who defend that, since only the natural person appointed intervenes in the company’s relationships with third parties and corporate creditors, it is only this person who is liable to these third parties, who would not benefit from the system of joint and several liability. According to this position, the joint and several liability of the legal person/director for acts of the director it has appointed would only exist in actions of third party liability in favour of partners.
Other Rights and Obligations of the Legal Person/Director
Despite the apparent simplicity of the legal regime, several questions remain unanswered regarding the regime applicable to the legal person/director, namely with regard to remuneration, the provision of a surety, carrying on competing activities or transactions with the company. On this matter, it has been generally proposed that the regime applicable to the suspended director that determines that all powers, rights and obligations shall be ineffective, except those that do not imply the effective exercising of duties should apply, by analogy, to the legal person nominated.
The remuneration of directors is established given the duties they carry out and the economic situation of the company. Given that, as we have seen, the duties of the legal person/director are limited to the appointment of the natural person, it has been understood that it should not be the legal person that receives remuneration for carrying out the duties of director but instead the natural person it has appointed, since this is who effectively carries out such duties.
This does not exclude, however, the possibility of an arrangement between the natural person appointed and the legal person making the appointment by which the former hands over to the latter the entirety or part of the financial benefits received when carrying out duties as a director.
With regard to the requirement of a surety, it is understood that this does not apply to the legal person nominated director, but instead to the natural person actually appointed to hold office, since it is this person who carries out duties as a director. If a bond were required from the legal person, this would be a second guarantee for the same losses, since the legal person would only be liable for losses caused by the director appointed.
Also important is the question of whether the limits on competing activities are applicable to the legal person/director. There may be a situation in which the legal person nominated is in the same sector of business as the company in question.
Despite the fact that law is silent as regards this matter, we believe that in situations of competition between the legal person/director and company in question, as suggested above, in view of the consequent inflow of information on the business of the company deriving from its administration, the company’s regime for competing activities should be applied, in other words they should be subject to the consent of the general meeting. It should be recalled that this consent is assumed when the competing activities are already pursued prior to the nomination of the legal person to the position of director.
Finally, with regard to the applicability of the regime subjecting the validity of transactions between the director and the company to a prior decision taken by the board of directors, with the assent of the supervisory board or the audit committee, we understand that for reasons of prudence, transparency and the promotion of good corporate governance practices, the relevant provisions on this matter should be complied with.