acephalous corporation

The convening of meetings in acephalous companies

What is an acephalous company? What are the consequences of this headlessness? What are the keys to avoid it? Who calls the meetings in an acephalous company? Does only the law confer these powers of convocation? Can clauses conferring this power be included in the bylaws? What if the intention is not only to renew the administrative body, but also to modify it?

What is an acephalous corporation?

A corporation becomes acephalous when it is left without a functional administrative body. This situation can occur for multiple causes of very different origin. For example, with the death of the sole administrator of the company. But also, by the non-renewal of the already expired positions. Another recurrent situation is the imposition of reinforced majorities in the bylaws that prevent the renewal of the body.

As we can see, there are a really wide range of cases that lead to the acephaly of a capital company. However, among the consequences of this situation, there is one that stands out. The acephaly generally leads to the paralysis of the corporate bodies. This will cause the company to be dissolved.

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2. Who calls the shareholders’ meetings in an acephalous corporation?

Generally, the shareholders’ meetings are called by the administrators, or liquidators, as the case may be, of the company. The law expressly grants them this authority. In the call, such bodies must comply with legal and statutory deadlines and requirements.

However, what happens with acephalous companies? In these cases, we find that the competent body to convene the meeting is unable to do so. It is ironic: the company needs to renew its administrative body and must do so by means of a shareholders’ meeting. This meeting, however, cannot be convened, because there is no functional administrative body.

In this case, there are two solutions that can help the company to get out of this situation of paralysis.

2.1. The Universal Meeting.

This type of meeting takes place with the presence of each and every one of the partners of the company. The totality of the share capital must appear, or be represented. In addition, all the partners must accept, unanimously, the celebration of the meeting.

Universal meetings do not require prior notice. Therefore, the problem of the impossibility to call a meeting disappears.

2.2. Call in special cases.

Corporate regulations include an exception for the cases we have been analyzing in this collaboration. This exception is divided into two possible solutions:

a) Via call by the Legal Counsel of the Administration of Justice or the Commercial Registrar.

Any partner of the company can request the Registrar or the Legal Secretary of the Administration of Justice (formerly known as the Court Clerk) to call a meeting. This is a possibility that only occurs for specific reasons provided for in the regulations. These specific situations revolve around the figure of corporate acephaly.

b) By means of convening by current directors.

However, there is an additional solution to the one proposed above. Let us take as an example a company whose administrative body is joint, although this exception is applicable to more cases.

These directors must always act jointly. In other words, they may not call a meeting autonomously or independently. However, the termination or death of one of the joint administrators may have occurred. In such a case, the law grants powers to the remaining administrator to call the meeting. However, the only object of the agenda must be this end. That is to say, that this administrator will not be able to call a meeting in which additional subjects to this one are treated.

  • Is it possible to modify the management body through this call?

A resolution of the General Directorate of Security and Public Faith (DGSJFP = La Dirección General de Seguridad y Fe Pública) issued just a few months ago is relevant. In it, they confirm the possibility that through this exceptional call, not only can the vacancy be replaced, but it is also legitimate to change the administrative body. Continuing with the previous example, from joint to sole administrator. However, this change of administrative body cannot entail a modification of the articles of association. In other words, the company’s articles of association must allow for the existence of different types of administrative bodies.

  • Can I grant this convening power to joint directors in the bylaws?

The General Directorate of Security and Public Faith (DGSJFP) has ruled on this matter on several occasions, and very recently. This body considers that the inclusion of a clause empowering the remaining joint administrator in this sense is perfectly lawful.

Limited liability companies have a manifest regulatory flexibility. Always respecting the imperative rules of the corporate legislation, their main rule to follow are the bylaws. Therefore, it is logical that the DGSJFP allows this type of statutory clauses.

3. Conclusion.

The acephaly in the mercantile companies can derive in cause of dissolution. To avoid this situation, the legislation proposes various solutions, which will be more or less beneficial depending on the specific case. Universal meetings, convening by the Lawyer of the Administration of Justice (formerly called Judicial Secretary) or Mercantile Registrar, or the possibility of convening by the remaining administrators or directors.

Also, the DGSFP has recently issued a ruling, opening up new possibilities in these cases. Firstly, allowing the bylaws to include the power of joint directors to call a meeting in these situations. Secondly, by considering it lawful to modify the type of administrative body in the meetings summoned  this way.

If this article has been of interest, we also suggest you to read the following article published on our website: A Practical Guide to Directors Liability.

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