When a Managing Director (MD) is appointed onto a Board of Directors, the company is obliged to enter into a contract with him according to article 249.3 of Royal Legislative Decree 1/2010, of July 2, which implements the Corporate Enterprise Act (CEA).
The CEA expressly mentions that the contract must include all details of the MD's salary. There is no doubt that if the MD receives a salary from the company, then both parties must enter into a contract. But is this the only reason for the existence of a contract? And, if the MD does not receive a salary, is the contract really necessary?
The Directorate General of Registries and Notaries (DGRN) in a recent Ruling of 12/12/2018 understands that it is necessary, arguing that, in addition to financial issues, there are others which should be governed by a contract. The ruling upholds the appeal against the decision of the Commercial Registrar who refused to register the company´s minutes appointing the MD because he did not receive a salary. The main impediment was the contract entered between the MD and the company provided for in article 249.3 CEA mentioned above. The Registrar refused to register his appointment and alleged that the contract could only include information about the MD's salary. Therefore, because the MD would not receive a salary, the contract could not be signed. The DGRN considered this reasoning to be erroneous and consequently revoked the decision of the Registrar.
The DGRN argued that what follows from the literal content of article 249.3 CEA is the existence of the obligation for a contract to be entered into between the MD and the company, even if the former carries out his executive functions free of charge. It adds that the contract is not limited to financial issues, but can also regulate other aspects of the MD's performance or his legal situation (for example, specifying certain obligations, stipulating the consequences of severance, etc.).
In conclusion, it is mandatory for a contract to be signed between the company and the MD not only when his position is a paid one, but also when, this not being the case, it is decided to regulate other aspects of his position other than those that are solely related to his salary.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.