Guide on Directory and Directory Session in Companies:
We will see what is a Board of Directors and its Generalities, how to make a Board Meeting and finally we will see different structures of powers of attorney and proxies useful for the Companies. Also the taxation of the income paid to the Directors.For more information, check out our Directory Services page.
1. General information on the Board of Directors in Chilean companies (SpA and S.A.)
Knowing how a Board of Directors works in a company is very useful for several reasons, since it is a way of administering companies that allows access to different advantages and benefits if it is applied correctly.
1.2 What is the Board of Directors of a Company?
The Board of Directors is a collegiate body of the Company whose main function is the senior management of the Company.
This is the body that sets the legal, economic and financial policies of the Company and is sometimes involved in certain relevant acts and contracts entered into by the Company.
The key is the role of the Board of Directors and what I call "Board thinking"; for the Board is in charge of:
- Business risk assessment
- Long-term strategy development
- Review of business compliance with regulatory requirements
- Approval of the company's budget and investment plan
- Appoint and possibly fire the CEO
1.2 There are Different Ways to Manage SpA - SA must always have a Board of Directors.
|Applies to SpA
|Number of Members
|1 or more
|Minimum 3 members in Closed SA and minimum 5 in Open SA.
|Form of action on behalf of the Company
|Signing jointly or Indistinctly, with possible limitations
|It may act with the powers provided in the bylaws or delegated to it by the Board of Directors.
|Board of Directors signing jointly or delegating to one or more managers or proxies (a Director may not act as such).
1.3 Should I have a Board of Directors in a SpA?
Suitable in any of the following situations:
- When an investor shareholder wishes to have the right to appoint a Director, in order to have a say in the management of the Company.
- When the Company has a number of
1.4 The Board of Directors is not the same as "One Director": The former is made up of several Directors.
It is necessary not to confuse the Board of Directors with a "Director", General Manager or Administrators.
The Board of Directors is the management body of the Company, composed of Directors, who are also individuals appointed by the Shareholders' Meeting, or in certain cases by the Directors.
Although they are related concepts, when it comes to managing the Company, they have different roles and ways of operating within the Company and with third parties.
Since it is a collegial body (composed of several members), it has the following practical consequences:
- Each director does not have the power to manage or represent the Company. This function is given by law to the Board of Directors as such (see 1.3 below).
- In order to make decisions and take action, a meeting of the Board of Directors must be held in accordance with the Bylaws and the Law.
- The directors considered individually are not accountable to the shareholders (nor are they their agents), but must act in the interest of the Company.
1.3 The Board of Directors represents the Company in and out of court.
The Board of Directors, in accordance with Article 40 of the Corporations Law, represents the Company judicially and extrajudicially.
For the fulfillment of the corporate purpose, which will not be necessary to prove to third parties. It is vested with all the powers of administration and disposition that the law or the bylaws do not establish as exclusive to the shareholders' meeting.
All of the above without the need to grant any special power of attorney. This includes for those acts or contracts for which the law requires this circumstance.
The foregoing is without prejudice to the representation of the manager, in accordance with the provisions of Article 49 of the Corporations Law.
1.4 Contractual Relationship of each Director with the Company: Type of Agents
The relationship of each Director is not an Employment Contract (labor) nor is it a special type of bond generated by the Law.
It is therefore a type of Mandate that is held with the Company, where the main obligation of the Director is to appear at the meetings of the Board of Directors.
The above also explains why Directors are taxed on a fee basis for their role, as we will see below.
1.5 How are Directors' remuneration taxed? 10% withholding tax
In relation to the tax status of the shares or allowances corresponding to the directors or board members of corporations for the performance of their duties, Article 48 of the LIR provides that they will be subject to tax:
- to the Global Complementary Tax established in Title III, in case the beneficiary has domicile or residence in Chile, or,
- Additional Tax contemplated in Title IV, in case you have domicile or residence abroad.
In addition, the corporation must withhold, in accordance with Article 74 No. 3, a provisional tax of 10%.
Update: Directors can now issue in the SII electronic fee slips with 10% withholding, but it is the respective SA that must carry out the prior registration procedure.
To do so, you must enter the SII website: Online Services menu/ Electronic Fee Slips/ Maintainer of Directors S.A.
After authenticating with the company's RUT and Password, the Director will be able to perform the corresponding update, and will automatically be able to issue his Electronic Fee Slip".
2. How the Board of Directors is composed and elected: Regular and Alternate Directors and Chairman.
In Chile, Boards of Directors must have more than 1 person, being the minimum 3 in closed joint stock companies and 5 in open joint stock companies. This is not the case in other countries such as the USA and UK, where the role of Director can be of 1 or 2 members.
In addition, each Director may have an alternate Director to replace him/her in case of temporary or permanent absence.
2.1 Election of the Board of Directors: 3 Ways to elect a Board of Directors
There are different ways and times to choose the directory.
- Provisional Board of Directors at the time of incorporation: Normally appears in the Transitory Articles of Incorporation and must be ratified at the first meeting of the Board of Directors.
- Board of Directors when appointing Replacements: in case of vacancy, the Board of Directors may exceptionally appoint a replacement that will last until the next Ordinary Shareholders' Meeting.
- Ordinary Shareholders' Meeting: Normal form of appointment, since it is a legal matter for Ordinary Shareholders' Meetings to elect the Board of Directors according to the period established in the Bylaws and the Law.
2.2 How are the Shareholders elected at the Meetings? Election and voting of Shareholders
It is the shareholders who elect the directors.
In practice, shareholders can accumulate votes as they wish.
- In favor of a single person
- Dividing your shares among one or more persons
Those who, in a single ballot, receive the highest number of votes to complete the number of positions shall be proclaimed elected.
2.3 What is the Chairman of the Board and what does he/she do? Position and functions
Article 39 of the Regulations of the Corporations Law provides:
At its first meeting after the Annual Shareholders' Meeting at which its election was held, the Board of Directors shall elect a Chairman from among its members, who shall also be the Chairman of the Company.
3. Board of Directors Meeting and Powers Structures
The board of directors may delegate authority to one or more managers, advisors, attorneys and other consultants of the company.
Art. 40 Corporations Law
To perform a Directory Session in SpA follow these steps:
- Election of the Board of Directors and Elections for Office
- Notice of Board of Directors' Meeting
- Define who can convene the Board of Directors and when.
- Session Location and Videocall Sessions
- Attendance and Voting Quorums of the Board of Directors' Meeting
- Take Minutes of the Board of Directors' Meeting