Board of Directors – role, characteristics, competences

We have written about simple joint-stock company (PSA) on the blog HERE. Depending on how you form the articles of association of a PSA, its authorities may include:

• general meeting (of shareholders) – always;
• management board – alternative to board of directors (either board of directors, or management board);
• board of directors – alternative to management board (either management board, or board of directors)
• supervisory board – optional and only if the articles of association stipulate existence of the management board (the existence of the board of directors excludes supervisory board).

We explain here the function of the board of directors – one of the “novelties” in the context of a PSA.

Board of directors – new type of company authority

We are all familiar with the general meeting, management board, and supervisory board. The role of a board of directors needs some explanation. In a simple joint-stock company (PSA) the board of directors performs both the executive and supervisory functions – in accordance with new Article 300⁷³§1 of the Code of Commercial Companies “board of directors manages the company, represents the company, and supervises management of the company matters”. So it combines the functions of the management board and supervisory board.

Board of directors may be composed of one or more directors who are by default appointed, dismissed and suspended in their duties by shareholders through resolutions. However, articles of association may stipulate a different mode and procedure of director appointment. For example, directors may be appointed by a shareholder named in the articles.

Representation

As mentioned above, the board of directors represents the PSA. When the board of directors is composed of one director, such director is authorised to solely represent the company and to make declarations of will on behalf of the company (including to enter into contracts). However, in case of more directors, PSA may be represented by two directors jointly or by one director jointly with an authorised signatory [prokurent]. Obviously this issue may also be regulated differently in the articles of association.

On the subject of authorised signatories – appointment of an authorised signatory requires consent of all directors, however, they may be dismissed by any one director.

Resolutions of the board of directors

The board of directors, as a collegial body, makes decisions through resolutions. Adoption of resolutions requires quorum of half of the number of directors in office. Resolutions are adopted by an absolute majority of votes. Both the quorum and the majority required to adopt resolutions may be modified in PSA’s articles of association.

Executive and non-executive directors

When the board of directors is composed of more than one director, all or some (save those explicitly listed in the legislation) business management responsibilities may be delegated to one or some directors. Delegation of those responsibilities may be stipulated in the articles of association or regulations of the board of directors. The board may also assign competences to its members by way of a resolution. The new rules introduce here two new terms:

• executive director;
• non-executive director;

Executive directors are directors who are entrusted (by articles of association, regulations of the board of directors, or resolution of directors) with some or all business management responsibilities. An executive committee, composed of executive directors only, may be appointed to perform business management for the company.

Non-executive directors oversee company management. A board of directors committee may be created to carry out ongoing supervision of the company management. It is composed exclusively of non-executive directors. Specific duties of non-executive directors include:

• review of the fairness and accuracy of reports referred to in Article 300⁸²2.1 of the Code of Commercial Companies, namely the report of the management board on the company’s activities and financial statements; and also
• presentation of an annual written report on the outcomes of that review to the general meeting.

Relationship of the director and PSA

The most important issues related to company representation also include company representation in relations with its directors. The new rules offer two approaches – in the contract between the company and the director and in any dispute with the director the company may be represented by:

• attorney appointed by a resolution of shareholders;

or

• non-executive director acting on the basis of a resolution of the board of directors adopted by non-executive directors only.

Those rules are not applicable when the director (being a party to the contract in question or a dispute with the company) is also the sole shareholder of the company. In such case, in accordance with Article 300⁷⁹§ 4 sentences 2 and 3 of the Code of Commercial Companies: “Legal transaction between such shareholder and company represented by them requires the form of a notarial deed. The notary notifies registration court of each such legal transaction through an ICT system.” This solution corresponds to the regulation in Article 379.2 of the Code of Commercial Companies concerning situations where management board member is also the sole shareholder of a joint-stock company.

Board of directors starting point

The rules on the board of directors will enter into force on 1 March 2020. Only after that we will see how the new type of company authority will work in practice and how simple joint-stock companieswill create their authorities and their roles.

Author:

Joanna Szumiło, Attorney-at-Law