Removal of a company director and dismissal of an attorney-in-fact

The removal of a director of a private limited company or public limited company can only be carried out by the general meeting of shareholders. An ordinary, qualified or enhanced majority will be required, depending on the company's articles of association.

Removal of a Director: A Delicate Decision

Under the Spanish Companies Act (Ley de Sociedades de Capital), only the general meeting of shareholders of a public limited company or private limited company has the legal authority to remove a director. This ensures that no individual shareholder can make such a drastic decision alone, unless they hold a sufficient proportion of the share capital to pass valid resolutions.

That said, minority shareholders have legal mechanisms available to compel the calling of a general meeting in which the continuation of the director in office can be debated. It should not be forgotten that this is one of the most sensitive decisions that can be made within a company.

Grounds for Removing a Director

Spanish company law allows for the removal of a director without the need for any specific justification, except where the company's articles of association or contractual arrangements establish particular conditions.

However, in practice, the removal and replacement of a company director is usually based on one of the following reasons:

• Negligent or ineffective management: namely, poor strategic decision-making that prevents the achievement of business objectives and causes the general meeting of shareholders to lose confidence in the director.
• Conflicts of interest or abuse of power: where the director uses their position to obtain personal benefit or cause harm to the company.
• Lack of transparency: particularly where there is suspicion of non-compliance with legal obligations, such as filing the annual accounts.

What Majority Is Required to Remove a Director?

As mentioned above, the removal of a director must be approved by a resolution passed at a general meeting of shareholders. Under the Spanish Companies Act, an ordinary majority is generally sufficient. This simply means that there must be more votes in favour than against.

However, the legislation allows a company's articles of association to establish different requirements. For example, they may require that the ordinary majority represents at least one-third of the total share capital, or that the resolution be adopted by a qualified majority (two-thirds, three-fifths, etc.).

For example, imagine a private limited company with three shareholders holding 30%, 40% and 20% of the share capital respectively. Since an agreement between any two of them would represent at least 60% of the total share capital, they would have no difficulty removing the director.

Can a Minority Shareholder Promote the Removal of a Director?

Yes, but certain requirements must be met. First, the shareholder must hold at least 5% of the share capital, which entitles them to require the director to convene a general meeting of shareholders. If the director fails to do so within two months, the shareholder may apply to the courts for a judge to order the meeting. In addition, if resolutions contrary to the law or harmful to the company are adopted, the shareholder has the right to challenge them through legal proceedings.

The Legal Procedure for Removing a Director

As follows from the above, the first step in removing the director of a private or public limited company is to convene a general meeting of shareholders, with the vote on removal included on the agenda. During the meeting, voting will take place either by secret ballot or by a show of hands, depending on the provisions of the articles of association. It is important to note that the minimum quorum required must be achieved for the resolution to be valid.

Once the general meeting has concluded, the following steps must be taken:

Drafting the Minutes

The outcome of the vote and the resolutions adopted must be recorded in the minutes, which must be signed by the chairperson and the secretary. The minutes must accurately reflect:

• The identity of those attending and the percentage of share capital held by each of them.
• Any discussions that took place.
• The resolution removing the director.
• The voting result, including a breakdown of votes in favour, against and abstentions.

Registration with the Commercial Registry

This step is particularly important, as it makes the removal effective against third parties. The registration must be completed within a maximum period of 10 working days from the date of the shareholders' meeting.

If a new director has been appointed, the registration must be accompanied by their express acceptance of the appointment before they can assume their duties. Until then, although the former director has been removed, they will continue to appear in the Commercial Registry.

Notification of the Director's Removal

It is true that the Spanish Companies Act does not explicitly require the general meeting to notify the director of their removal. However, doing so is highly advisable, as it facilitates the handover of accounting and corporate records, legal and financial documentation, and powers of attorney.

Ideally, notification should be made through the deed of removal and appointment of director obtained from the Commercial Registry. It should not be forgotten that an orderly transition is essential to protect the company's interests and avoid operational disruption that could subsequently lead to breaches of obligations towards clients, something that benefits all parties involved. This also includes the removed director, who may still retain an interest in the company.

What Legal Effects Does the Removal of a Director Have?

The adoption of the removal resolution at the general meeting and its registration with the Commercial Registry give rise to a number of obligations for the removed director. Beyond the revocation of their powers and the loss of authority to represent the company, these include:

• Duty to account: by delivering all accounting and financial documentation, together with any other information necessary to facilitate the transition.
• Liability for possible damages: if the company suffered losses due to negligent or harmful actions during the director's term of office, legal action may be brought against them.

At this point, it should be clear that a company's attorney-in-fact may be dismissed, although the more accurate legal term is "removed from office". However, this is a complex process with many legal nuances, which is why it is always advisable to seek the advice of an experienced lawyer to guide you through it.