Who are the key corporate actors (e.g., the governing body, management, shareholders and other key constituencies) and what are their primary roles? How are responsibilities divided between the governing body and management?
The organisational structure of a JST provides for a mandatory two-tier board structure. Key corporate actors are (i) the management board, (ii) the supervisory board, and (iii) the general shareholders' meeting.
The management board manages and represents the company at its sole responsibility and, safe for certain transactions defined by law that require prior approval, is not subject to instructions from the supervisory board or the shareholder meeting.
The supervisory board monitors and controls the actions of the management board. One of the supervisory board's key review functions concerns the company's financial reporting. For this purpose, the Austrian Stock Corporation Act provides for the mandatory establishment of an audit committee for public companies and certain other (large) companies; otherwise the supervisory board may, at its discretion, establish and delegate certain tasks to committees.
The rights of the shareholders of a JST are materially limited to information rights, voting right and the right to receive dividends. Shareholders have no right to directly instruct or otherwise influence the management board, other than with respect to certain reserved decisions to be made in shareholder meetings (see below) and those fundamental business decisions that the management board or the supervisory board put to a vote by the shareholders. In addition, Austrian doctrine (following the Holzmüller-doctrine developed by the German Supreme Court) requires shareholder approval with respect to certain structural decisions that may significantly interfere with shareholders' rights by impacting their asset and control position. The Austrian Supreme Court, however, is reluctant to apply this doctrine, and – in a very recent decision rendered with respect to a limited liability company – applied analogies to provisions of the Austrian Stock Corporation Act, instead of taking stance to the Holzmüller-doctrine.
In Brazil, key corporate actors in a company’s management will normally include the general meeting, board of directors, the executive office, advisory committees and potentially the fiscal board, as the case may be.
General meetings are attended by shareholders; they are called and instated pursuant to applicable laws and the company’s bylaws, with authority to resolve on all matters related to the company’s business purpose, as well as to adopt any resolutions deemed advisable for its protection and development. Such powers, however, are limited to the company’s business purpose, applicable laws and the bylaws.
Annual general meetings, mandatorily called and held during the first four months of each tax year, have the purpose of verifying the management accounts; examining, discussing and voting on financial statements; electing managers and members of the Fiscal Board; resolving on the allocation of the net profits for each tax year as well as on the distribution of dividends.
Extraordinary general meetings, on the other hand, may be called at any time to discuss specific matters relating to the holders of preferred shares, debentures, participation certificates or subscription warrants.
As a rule, resolutions must be taken by a majority of votes, i.e. representing fifty percent (50%) of the voting stock plus one (1). The attendees of a meeting must bring forth evidence of their shareholder status, and may be represented by proxy.
Minutes of the meeting must be drawn up in the proper book and signed by the shareholders then present (among other persons). These minutes must also be registered with the Public Register of Companies.
Board of directors
The board of directors is a decision-making body with authority to establish the company’s business policy in general; to elect and dismiss officers; to set the duties and monitor the day-to-day managerial actions of the officers; to express an opinion on any matters to be submitted to the shareholders; and to approve the implementation by the executive office of specific matters prescribed by law or under the company by-laws. The authority of the board of directors established by the Brazilian Corporation Law cannot be delegated to other bodies.
The Brazilian Corporate Law acknowledges the existence of committees or bodies created by board of directors through the articles of associations or bylaws (e.g. compensation, related-party transactions, audit and risk committees) to assist the management of the company. It also establishes that all the rules regarding fiduciary duties and liabilities applicable to management will also apply to the members of such advisory and technical committees. In Brazil, the existence of advisory committees to the board of directors is a common practice at closely and publicly-held corporations alike.
For the companies currently listed at the Novo Mercado listing segment, it will be mandatory to install an audit committee, statutory or not, as from the ordinary general meeting that shall approve the financial statements related to the fiscal year of 2020.
In broad terms, the executive office runs the company’s day-to-day operation. Among other duties, it represents the company in dealings with third parties. The company’s by-laws may establish that certain managerial decisions should be taken in executive office meetings only.
The by-laws will also establish the number of officers permitted, the manner of their replacement, their term of office, and the assignments and powers of each officer. Officers will perform their duties separately, according to their assignments and powers, but in keeping with the other officers, and will not be held liable for any obligations assumed on behalf of the company as regards routine acts necessary for the company’s management.
If the by-laws are silent or there is no resolution adopted by the board of directors prescribing the officers’ duties, any officer may represent the company and take the actions necessary for its routine operations.
The fiscal board is a supervisory body responsible for supervising the company’s directors and officers and providing information in this respect to the shareholders.
The fiscal board is a compulsory body, but need not operate on a standing basis. A non-permanent fiscal board must be instated upon the request of shareholders representing at least 10 per cent of the voting stock or 5 per cent of the non-voting stock.
The fiscal board is composed of three to five members and a like number of alternates. The conditions for election and impairment of fiscal board members (who must be Brazilian residents) are prescribed by law.
The fiscal board has the authority to, among other things:
- monitor the actions of the company’s officers and directors and verify their compliance with their legal and statutory duties;
- review and give an opinion on the board of directors’ annual report;
- review and give an opinion on proposals of the management to the shareholders’ meeting relating to changes in capital, issuance of debentures or warrants, investment plans or capital budgets, dividend distribution and certain corporate reorganisations;
- report any error, fraud or criminal act and suggest measures useful to the company to any officer or member of another administrative body and, if these fail to take any necessary steps, to act to protect the corporation’s interest and report to the shareholders’ meeting;
- review the balance sheet and other financial statements periodically prepared by the company; and
- examine the financial statements for the fiscal year and give an opinion about them.
The fiscal board’s authorities can be neither delegated nor attributed to any other body of the company.
Besides shareholders, the key actors in the above company forms are as follows:
- For an SA, two options are possible:
- An SAS must have a president (either an individual or a legal entity) but other governance features are optional, so that it is possible for the president to carry out all management functions with supervision only by the shareholders (who can deliberate as infrequently as once a year) or to provide for a board of directors, a supervisory board or other governing bodies.
- An SARL is headed by a manager (gérant) who must be an individual; other governance features are optional (but not common).
- Companies in other forms mentioned above are headed by one or more managers (gérants). An SCA features a supervisory board which oversees the manager(s).
(a) Under the “single-tier” structure, which is the most common, management authority is exercised by:
- a board of directors (conseil d’administration) made up of 3 to 18 members (not counting directors representing employees) presided by a chair (président), and
- the chief executive officer (directeur général or DG), who has the authority to bind the company vis-à-vis third parties (and need not be a member of the board).
One person may hold both the offices of board chair (président) and DG (and is then commonly referred to as the “PDG”) or the positions may be held by different individuals.
(b) Under a “two-tier” structure, the company is managed by individuals composing a management board (directoire) with not more than 5 members (7 if the company is publicly traded), one of whom is named chairman (président du directoire), or for companies with stated capital less than €150,000 by a sole chief executive (directeur general unique or “DGU”), but the management function is supervised by a supervisory board (conseil de surveillance) with between 3 and 18 members (not counting directors representing employees) headed by a chair (président).
An SA structure featuring a PDG, i.e. the same person being chair of the board of directors and DG, is referred to as having a unitary (moniste) structure, whereas an SA with a supervisory-board/management board structure or an SCA (having one or more managers and a supervisory board) is considered to have a two-tier (dualiste) structure. An SA with a board chaired by someone other than the DG is also sometimes classified as a two-tier structure.
Executive officers include, for a one-tier SA, the DG and any deputy DG (directeur general délégué) if named by the board; for a two-tier SA, the management board members or DGU; for an SAS, the president; for an SCA or SARL, the manager(s) (gérant(s)).
The key corporate actors are the Management Board, the Supervisory Board and the shareholders (and, for certain business decisions, also the works council (Betriebsrat)).
The Management Board is responsible for conducting the company’s business and representing the company opposite third parties. The Supervisory Board appoints, supervises and dismisses the members of the Management Board. A specific German particularity is co-determination in the Supervisory Board, which is discussed below.
The shareholders hold reserve powers on a number of matters, including structural measures, at shareholder meetings (Hauptversammlung). However, they have minimal influence on the company’s day-to-day business decisions. For a number of business decisions, the works council is responsible for ensuring management consider employee interests in decision-making processes.
Please see the answer to Q1.
Various parties involved in the management and operation of a company play roles, to a greater or lesser extent, in ensuring good corporate governance practices. These parties range from shareholders, the board, senior management, company secretary and auditors.
- Shareholders: As the owners of a company, shareholders have to make sure decisions made are in their and the company’s best interests. Shareholders are required to hold annual general meeting (“AGM”) or pass resolutions to determine material decisions such as the appointment and removal of directors and auditors, the variation of rights of different classes of shares, the consideration and approval of the accounts, reports of the directors and auditors and other documents annexed to the accounts, and the declaration of final dividends issued out of a company’s distributable profits. These may be prescribed by the articles of association of the company.
- The Board: The board generally bear the ultimate responsibility to manage and supervise the company and to protect the interests of shareholders. All decisions made by directors should pass through the board at meetings held with the necessary quorum. The board and the company’s senior management are closely tied to each other but the board will usually delegate some of its powers to the senior management and appoint executives to manage the day-to-day business operations.
- Senior Management: Senior management is formed by executives responsible for managing different functions of a company. Chief executive officer (CEO) is responsible for setting forth the strategic direction of a company whereas chief operations officer (COO) and chief financial officer (CFO) are responsible for operational and financial controls respectively. Other functions include human resources management, risk management and information technology management. Subject to the nature of a company, executives may also be appointed to manage the business functions of a company.
- The Company Secretary: The company secretary is responsible for ensuring a smooth operation of a company and compliance of relevant regulations and procedures. The company secretary is responsible for maintaining the corporate registers and other corporate records of the company and preparing documents and filings with the Hong Kong Registrar of Companies (“Companies Registry”). The company secretary is also responsible for attending meetings and general meetings and keeping a record of the minutes.
- External Auditors and Internal Audit System: External auditors appointed at AGM must be certified public accountants qualified to be appointed under the Professional Accountants Ordinance (Chapter 50 of the Laws of Hong Kong). Internal audit function is not required for private companies but sizeable companies often conduct internal review on compliance and audit, whereas listed companies are required to establish an internal audit function, and if not, to review the need for one on an annual basis and to disclose the reasons for its absence in the companies’ Corporate Governance Report (paragraph C.2.5 of the Corporate Governance Code [as defined below]).
While a shareholders' meeting is the ultimate governing body, other key corporate actors may differ depending on the structure of the management body, which can be classified into three types: (i) a company with statutory auditors; (ii) a company with an audit and supervisory committee; and (iii) a company with three committees.
(i) Company with statutory auditors
Shareholders elect both directors and statutory auditors, and the directors constitute a board of directors. The board of directors appoints representative directors, who can bind the company and take general responsibility for the management and operation of the company on a daily basis, from among the directors.
Directors must monitor the performance of duties of other directors, and statutory auditors must audit the management of the company by the directors. Important decisions of the company provided by law or the articles of incorporation must be resolved at a board meeting. Most listed companies fall under the category of a large company (companies with capital of JPY 500 million or more or with total debts of JPY 20 billion or more), and the statutory auditors of a large company must form a board of statutory auditors with three or more members.
(ii) Company with an audit and supervisory committee
Shareholders elect directors who are members of the audit and supervisory committee and other directors separately, and all of those directors constitute the board of directors. No statutory auditor is appointed.
The board of directors appoints one or more representative directors from among the directors who are not members of the audit and supervisory committee, and such representative directors are given the same authority as in a company with statutory auditors.
The audit and supervisory committee is empowered with broader audit authority than the statutory auditors in a company with statutory auditors and is authorised to state its opinions on the election, dismissal and remuneration of directors who are not members of the audit and supervisory committee at the shareholders' meeting.
(iii) Company with three committees
Shareholders only elect directors, and the directors form a board of directors and elect the members of three committees from among these directors. No statutory auditor is appointed. The three committees are (a) the audit committee, which mainly audits the directors and executive officers, (b) the nominating committee, which determines proposals to be submitted at the shareholders' meeting regarding the appointment and dismissal of directors, and (c) the compensation committee, which determines compensation for each director and executive officer.
The board of directors appoints executive officers (shikko-yaku) who manage and operate the company on a daily basis, and directors and the board of directors supervise the executive officers. The board generally cannot manage and operate the company by itself and needs to delegate the authority to make important decisions to executive officers to enable the company to make various decisions in a timely manner. If two or more executive officers are elected, the board of directors must select representative executive officers.
Historically, (i) is the most common corporate structure for the listed companies in Japan. However, the number of (ii), which were introduced in 2014, is gradually growing, and over 900 companies listed on the TSE have adopted this new structure as of December 31, 2018. While (iii) was introduced in 2002, it is less popular than the other two structures in number, as approximately 70 companies have adopted this structure as of December 31, 2018.
No matter which structure is adopted, each of the directors and executive officers take responsibility for the management of the company. As shareholders' responsibility is limited to the amount of their invested capital, shareholders generally do not have any responsibilities.
In limited companies, the key corporate actors are shareholders and management (commonly being shareholders), and the supervisory body for larger companies.
The main roles in stock companies are played by the governing bodies responsible for the administration and supervisory tasks. Aiming at establishing adequate check and balances, the administration tasks include both management and oversight responsibilities (the latter being mainly focused on strategic decisions and monitoring the day-to-day management), and the supervisory tasks include the supervision of the administration, quality of financial information and efficiency of internal controls and risk management.
In the classic and Anglo-Saxon models (the most adopted in Portugal, the latter being more common in listed companies), the board of directors elected by the shareholders is responsible for the management of the company and may delegate, subject to certain limitations, the day-to-day management in director(s) or an executive committee. In these one-tier board structures, the management and oversight responsibilities are performed by executive and non-executive board members, respectively. The supervisory role is carried out by a fiscal board (stand-alone corporate body elected by shareholders in the classic model), or by an audit committee (corporate body composed by non-executive board members also elected by shareholders in the Anglo-Saxon model), and by a statutory auditor as per 1. above.
In the two-tier model (less commonly adopted), the management and oversight responsibilities are divided between the executive board and the supervisory board, the former being appointed by the supervisory board (unless the by-laws grant such power to shareholders) and the latter elected by shareholders. Certain management decisions may be subject to the supervisory board’s prior consent under the by-laws. The supervisory role is performed by the supervisory board (including a committee for financial matters) and the statutory auditor, as per 1. above.
In these different models, the shareholders are key actors in general, not only in relation to the election, removal and remuneration of corporate bodies, but also approving the annual reports and accounts and profits allocation and any by-laws’ amendments.
All matters concerning management of a Company’s business including, but not limited to, disposition or transfer of material assets, borrowing a substantial amount, establishment and the closing of a branch office and appointment and discharge of a representative director or executive officers, must be carried out pursuant to a resolution of the BOD. Korean legal commentators generally take the position that all important matters concerning the management of a Company’s business are to be decided by a BOD resolution, unless the KCC or the AOI provide they are to be decided by a resolution of the shareholders. Other matters need not be decided by a BOD resolution, but instead may be delegated to another organ or body of the Company. In practice, the representative director or representative executive officer of the Company will be responsible for carrying out the decisions resolved by the BOD. Important corporate decisions such as corporate merger, split, business transfer or dissolution requires a special resolution of the GMS as well as a resolution of the BOD. Approval of the financial statements requires a resolution of the GMS, in principle, and election of a director must also be carried out pursuant to a resolution of the GMS. Please refer to Item 20 for specific matters reserved for determination by the GMS.
As a member of the BOD, a director participates in the decision-making processes and exercises supervisory oversight over the conduct of the duties by the representative director or representative executive officer, among others roles. Under the KCC, the directors of a Company have various duties and responsibilities towards the Company. Such duties and responsibilities include (among others): (i) duty of due care, (ii) duty to be faithful (duty of loyalty), (iii) duty of confidentiality, (iv) duty not to compete with the company, (v) duty against self-dealing and (vi) duty against appropriation of business opportunities.
If a Company has implemented the representative director system, then the representative director, who is also a member of the BOD, has the general power and authority to represent the Company in dealings with third parties, to execute commitments in the name of the Company and to manage the general affairs of the Company in the ordinary course of business subject to the general policy and resolutions of the BOD and GMS. On the other hand, if a Company adopts the representative executive officer system, the executive officers are required to carry out the executive role with the BOD exercising supervisory oversight over them.
The key corporate actors are the board of directors, the executive management and the shareholders (acting at the general meeting of shareholders). The board of directors is responsible for such duties as are non-transferable pursuant to statutory law. These include, among other things, determining the strategy of the company and supervising management. It may delegate all other duties, namely the management of the company, to the executive management based on an authorization in the articles of association and the adoption of organizational regulations. However, such organizational regulations in most cases reserve certain matters for approval by the board of directors, such as significant acquisitions or disposals.
While the law states that the shareholders' meeting is the supreme governing body, its powers are generally confined by law and may be extended by the articles of association in very limited cases only. See question 20.
The key corporate actors and their roles vary significantly between corporations and LLCs. For corporations, there are three key actors: the board of directors, the management team and the shareholders. State corporate laws generally provide that the business and affairs of the corporation shall be managed by or under the direction of the board of directors. Thus, the primary role of the board is one of oversight, including selecting the company’s chief executive officer, developing (with management) the company’s strategy and overseeing risk management. The management team is tasked with carrying out the strategy, managing risk and operating the company on a day-to-day basis. Shareholders generally own equity interests in the company and, among other rights, typically elect directors onto the board. Most shareholders of public companies are passive investors who are not employees and do not have a direct role in the company’s operations while shareholders in smaller, private companies are sometimes employed in some capacity by the company.
While the exact structure and key actors for LLCs can vary widely based on the terms of the LLC’s operating agreement, there are two typical LLC structures: manager-managed and member-managed. The key actors in a manager-managed LLC are the manager(s), executive officers and member(s). Subject to the terms of the governing documents, LLC manager(s) typically function like the board of directors of a corporation. Manager(s) appoint executive officers and oversee the executive officers’ operation of the company. Members are the owners of the LLC and much like the shareholders of a corporation, they are sometimes passive investors who only elect the manager(s) or are also employed by the LLC in some capacity.
Member-managed LLCs, on the other hand, are owned and managed by the members themselves.
The principal actors are the shareholders, the board of directors and management. Their respective roles and responsibilities are generally governed by applicable law (principally the Companies Act 2006 and (where applicable the Listing Rule or AIM Rules) and the companies constitution. In offer situations, the UK Takeover Code will also apply. Listed companies will also need to comply with requirements stemming from the Shareholder Rights Directives (SRD I & II) which aim to strengthen the position of shareholders and encourage shareholder engagement, in particular for the long term.
Generally, the board may exercise all the powers of the company, with certain matters reserved to shareholders (for example, changes to the constitutional documents, share capital changes, share issuances etc).
Management are generally delegated the authority to manage the business on a day to day basis, under the overall supervision of the board, with material matters requiring board approval. The respective roles and responsibilities of board directors and management will typically be governed by their respective employment/engagement agreements, as well as internal corporate policies. Many listed issuers will implement a schedule of matters reserved to the board for approval, as well as bespoke delegations of authority for members of management.
Unlike in certain jurisdictions, such as the USA, there is no distinction between directors and officers: the directors of a company, and the company secretary are the company's officers. Senior management are not officers unless they are also directors (or the company secretary).
Typically, ownership of a corporation, being the shareholders, and management of the corporation, being the board of directors and the officers, have separate and distinct roles. The shareholders’ main responsibility is to exercise their voting rights to, among other things, elect directors and participate in other fundamental decisions of the corporation. Certain transactions, under either corporate or securities law, as applicable, require varying levels of approval by shareholders including, in limited situations, “majority of minority” approval by unconflicted shareholders.
The board of directors is responsible for managing or, more commonly, supervising the management of the business and affairs of the corporation, with a view to the best interests of the corporation. These duties include appointing the corporation’s officers, who are in turn responsible for the day-to-day affairs of the corporation and reporting to the board of directors.
The key corporate bodies of both limited liability companies and joint stock companies are the following:
- shareholders or quotaholders’ general meeting (assemblea dei soci) (see point 20 below);
- board of directors (consiglio di amministrazione) or sole director (amministratore unico);
- board of statutory auditors (collegio sindacale), a corporate body composed of professionals independent from the company and its management, which is entrusted with internal control functions; limited liability companies shall appoint a board of statutory auditors or a sole statutory auditor only if certain thresholds are triggered (Art. 2477 ICC).
Joint stock companies may also opt-in – by means of an explicit by-laws provision – for implementing one-tier (monistico) or two-tier (dualistico) corporate governance systems. The one-tier system is characterized by the presence of a shareholders’ meeting, a board of directors and a committee on management control, operating within the latter and composed of independent directors. The two-tier one is characterized by the presence of a shareholders’ meeting, a supervisory board and a management board, whose members are appointed by the supervisory board.
Joint stock companies shall also appoint an accounting auditor, which shall act in compliance with Legislative Decree 39/2010, provided that the board of statutory auditors may act as accounting auditor, conditional to: (i) the company not being required to consolidate the accounts of other entities, (ii) the company not being a listed or supervised entity, (iii) all statutory auditors being enrolled with the Register of Accountants.
The key corporate actors in a JSC are General Assembly (“GA”) and Board of Directors (“BoD”). Board of Managers (“BoM”) takes the place of the BoD in an LLC. There can be other organs of the company which are not mandatory (i.e. consultancy board, committees and commissions to determine risks in advance, liquidators in case of dissolution etc.), but discretionary organs are not mentioned herein. These discretionary organs cannot act or involve in matters which must exclusively resolved by BoD or GA by law. Apart from these, there may be also some authorized representatives and signatories carrying out the management of the company.
GA is composed of all shareholders of the company (real or legal persons) where they have the right to vote. The resolutions that must be adopted by the GA are specified under TCC and those that can be resolved by the GA are also regulated under Articles of Association (“AoA”) of the company.
BoD and BoM are the administrative and representative bodies of JSC and LLC respectively and the members of the same are appointed by the GA of each.
As per the liabilities, shareholders, namely GA, are not responsible for the acts or negligence of the company unless the shareholders have acted in fault in this regard. Moreover, the liability of the shareholders is limited to their subscribed capital contribution both in JSC and LLC. However, the shareholders of LLC are liable for the governmental debts with their personal assets according to their shareholding ratio in the company capital (Law on Collection Procedure of Assets No.6183, article 35).
Members of the BoD and the BoM are responsible for their incorrect documents or undertakings with regard to company and company transactions. They are not responsible for the acts or negligence of the company unless they have acted in fault in this regard and also they are not responsible for acts or negligence of persons appointed by them for duties not exclusive to their position unless they have shown reasonable level of diligence in selection of these persons. Also, the members of both are liable for the governmental debts of the company with their personal assets without any limitation. (Law on Collection Procedure of Assets No.6183, repeating article 35). Therefore, for the LLCs it must be noted that the shareholders are limitedly responsible for the governmental debts whereas the members of the BoM are liable for the same without any limitation.
(In our explanations below, we will be using the term “Governing Body” to refer to the BoD and BoM and using the term “Management” to refer to the other authorized persons involving in the management of the company. Moreover, we will mainly provide our detailed explanations regarding the GA in the “Shareholders” section.)
The key corporate actors are the shareholders and the directors.
In a SA the board of "directors" has the power to perform any acts necessary or useful to achieve the corporate purpose, with the exception of those reserved by law or the articles of association to the general meeting of shareholders.
In a SàRL, each "manager" may engage in all acts necessary or expedient for achieving the company’s purpose, apart from those that by law are reserved to the general meeting of shareholders.
The board of directors of a SA has to be composed of at least 3 directors, except in certain circumstances such as, but not limited to, the single shareholder SA which may be managed by a single director.
The SàRL has to be managed by at least one manager. In case of plurality of managers, they may be organized as a board of managers in accordance with the provisions of the articles of association and the law.
In both a SA and a SARL, the day-to-day management of the company and the representation of the company in this respect, may be delegated to one or more persons, members of the board or not.
In both the SA and the SàRL, the shareholders, in such capacity, do not actively engage in the operational aspects of the company, but have financial oversight, such as approving the increase and reduction of the company's share capital, approval of the annual accounts and distributions, appointing and removing the managers/directors and auditor, subject to the statutory majority requirements. Further to that, certain matters are reserved to the shareholders pursuant to the Companies Act and the company's articles of association.