Duties and obligations of the administrator of a company

In the complex legal framework that regulates business activities in Spain, the directors of a company play a crucial role.

Their duties and obligations are intrinsically linked to the proper functioning of the entity, as well as the protection of the interests of the partners and third parties involved.

In this article, we will explore the duties and obligations that fall upon the directors of a company in Spain.

To do this, we will rely on Title VI of the Capital Companies Law , which regulates matters concerning the administration of a company.

Specifically, its Chapter III establishes the different duties of the administrators that will be the subject of our study, corresponding to articles 225 et seq. of the Law.

What are the duties and obligations of the administrator of a company?

The Capital Companies Act, in its original wording, regulated the duties of administrators in their various forms (sole, joint, joint or director).

Distinguishing himself in the arts. 225 to 232, both inclusive: the duty of diligent administration, the duty of loyalty, the prohibition of using the name of the company and invoking the status of administrator, the prohibition of taking advantage of business opportunities, situations of conflict of interest, the prohibition of competition, people linked to the directors and the duty of secrecy. 

Later, the provisions indicated in Law 31/2014, of December 3 , which modifies the Capital Companies Law for the improvement of corporate governance, were rewritten .

And subsequently, Law 5/2021, of April 12, came into force, which amended the Capital Companies Law and its article 225.

Finally, Law 16/2022, of September 5 , reforming the consolidated text of the Insolvency Law , in force on September 26, 2022, modified its paragraph 1 and added a paragraph 3 to article 365.

As we see, the managers of a company have to face a great responsibility.

Therefore, the administrator is required to accept the position.

Just as it demands that the company be held responsible for its actions and commissions when they may harm the company, the partner or the creditors, which are the three most important interests to protect in the corporate sphere.

Let's see it:

Partner protection

In limited liability companies, which have a more familiar and restricted nature, it is necessary to avoid conflicts between the company itself as a group of partners and the administrative body.

In the case of anonymous companies, which are more open, it will be necessary to seek protection of the rights of the minority shareholder against abuses or disloyalty by the person who manages the company.

Administration of the company as a first obligation

The primary responsibility of any manager is to carry out management.

From the moment you accept the position, you must work for the benefit of society:

1. Supervising the operations of the company.
2. Resolving daily issues, both externally and internally.
3. Implementing the necessary measures for the correct functioning of the company.
4. Even calling the General Meeting when necessary. In fact, it is common for the administrator to be the one who calls the meetings in capital companies.

Fundamental rules for company administration

Proper administration imposes two fundamental rules on the administrative body:

• Duty to have and give adequate information to the partner.
• Duty to administer loyally and diligently. Let's explain this last one.

Duty of diligence and loyalty

The administrator of a company has the obligation to act with the diligence of a prudent businessman and with loyalty to the interests of the company.

This duty involves making informed and conscious decisions, based on a deep understanding of the circumstances and risks associated with each situation.

Loyalty requires that directors avoid conflicts of interest and act in the best interest of society, avoiding any personal exploitation of business opportunities.

This responsibility is reflected as a general demand for ethical behavior, requiring the manager to always act in the primary benefit of society.

A clear example of a violation of this obligation would be the decision-making motivated by the administrator's personal interests, instead of seeking the maximum benefit for the company.

What is meant by due diligence?

Article 225 of the Capital Companies Law establishes that directors have the responsibility to perform their duties diligently.

They must make decisions that are considered most appropriate to run the company correctly and always respect the obligations established by law and the company's bylaws.

The law details three key aspects in relation to the duty of care, which can be summarized as follows:

• "The directors must perform their duties and fulfill the duties imposed by the laws and statutes with the diligence of an orderly businessman, taking into account the nature of the position and the functions assigned to each of them.
• The administrators must have adequate dedication and will adopt the necessary measures for the good management and control of the company.
• In the performance of his duties, the administrator has the duty to demand and the right to obtain from the company the appropriate and necessary information that will help him fulfill his obligations.

Obligations within the framework of the duty of loyalty

Administrators must perform their duties with the loyalty of a faithful representative , acting in good faith and in the best interests of the company.

The breach of the duty of loyalty will determine not only the obligation to compensate for the damage caused to the company's assets, but also the obligation to return to the company the unjust enrichment obtained by the administrator.

Art. 227 LSC

Article 228 of the Capital Companies Law breaks down certain obligations contained in the duty of loyalty:

• a) Not to exercise their powers for purposes other than those for which they have been granted.
• b) Keep secret the information, data, reports or background to which he has had access in the performance of his position, even when he has ceased to do so, except in cases where the law allows or requires it.
• c) Refrain from participating in the deliberation and voting of agreements or decisions in which he or a related person has a conflict of interest, direct or indirect. Agreements or decisions that affect you in your capacity as administrator, such as your appointment or revocation for positions in the administrative body or others of similar significance, will be excluded from the previous obligation to abstain.
• d) Perform their duties under the principle of personal responsibility with freedom of discretion or judgment and independence from instructions and relationships of third parties.
• e) Adopt the necessary measures to avoid falling into situations in which their interests, whether on their own or on behalf of others, may conflict with the corporate interest and with their duties towards society.»

Compliance with the Law and social statutes:

The administrators must ensure that the company complies with all applicable laws and articles of association.

This includes, among other things, accurate financial reporting, timely tax payments, and respecting shareholder rights.

Ignoring these obligations can lead to legal consequences and damage the company's reputation.

Duties that arise from the previous ones

• Duty of confidentiality. Directors are obliged to maintain the confidentiality of the company's privileged information. This covers financial data, trading strategies and any other sensitive information. Violation of this duty may result in legal action by the company or affected shareholders.
• Duty of supervision and internal control. Directors have the responsibility of establishing effective internal control systems to safeguard the company's assets and ensure transparency in operations. This duty includes supervision of the daily management of the company, the implementation of appropriate policies and procedures, and the periodic evaluation of the risks to which the entity is exposed.
• Duty of accountability. Directors must be accountable to shareholders and, where appropriate, to supervisory bodies. This involves providing clear and complete information on the management of the company, its financial results and the strategic decisions taken. Transparency strengthens shareholder trust and contributes to sound corporate governance.

• Duty to act prudently. Prudence is essential in business management. Directors must carefully evaluate the risks and benefits of each decision, ensuring that the company does not take unnecessary or unjustified risks. This duty is closely linked to the duty of diligence and contributes to the long-term stability and sustainability of the entity.

Can those responsibilities be mitigated?

The previously mentioned duties required by law can be fulfilled.

In addition, you can:

1. Take out civil liability insurance (D&O) specific to directors and senior managers.
2. Iimplement a comprehensive program de Criminal Compliance throughout the company.
3. Count on professional adviceWhether internal or external, we provide legal and tax advice. At RRYP Global, we are experts in corporate law. You can count on us. [email protected] / +34 957 858 952.

Conclusions on Duties and obligations of the administrator of a company

The role of administrators in a company is of utmost importance, and their duties and obligations are the backbone of ethical and responsible business management. Failure to comply with these obligations may have significant legal and financial consequences.

Ultimately, compliance with these duties not only benefits society and its shareholders, but also contributes to confidence in the business environment and the sustainable development of economic activity in Spain.

In a business world in constant evolution, the understanding and observance of these duties stand as fundamental pillars for the success and integrity of any commercial company.

RRYP Global is a legal services firm specializing in business law.