The Company Director Checklist – Costa Rica
Contact:
[email protected] [email protected]
Item
Section
Understand: The role that you are expected to assume
Check
1
⃞
1
⃞
in the company. If you will be granted powers to represent
Item
Section
Check
Review: Company’s articles of incorporations
3
⃞
and by-laws; 1
⃞
Corporate governance code (if any);
3
⃞
1
⃞
Board of Directors’ and
3
⃞
3
⃞
3
⃞
3
⃞
4 -18
⃞
19 - 23
⃞
the company. Whether the company has a corporate governance code.
Shareholders’ minutes for the prior four years.
Whether you will be solely a director or if
1
⃞
Correspondence from the company’s
you will also have employee status in the
comptroller and/or auditor for the
company.
past four years. Approval of the company’s financial
Meet Shareholders;
statements for the past year. 2
⃞
Auditor’s report regarding the company’s financial statements (if available and/or obtainable).
President of the Board of Directors (if you
2
⃞
On-going Duties
Other directors;
2
⃞
Self Defence
General Manager;
2
⃞
Company comptroller;
2
⃞
Company lawyer; and
2
⃞
Company auditor.
2
⃞
are not being appointed to such position);
INTRODUCTION
The Costa Rican corporation, or Sociedad Anónima as it is called in the Costa Rican Code of Commerce (CoC), is a legal entity that by structure is operated by a Board of Directors. Article 181 of the CoC states that the business of the corporation will be managed and operated by a Board of Directors, which must consist of at least three members, who may be shareholders or not, and shall have the designation of President, Secretary, and Treasurer. Notwithstanding, the corporation’s articles of incorporation may create additional directors who would also sit on the Board. The CoC does not list or group all of the duties of the Directors under a particular article or section, but rather includes then throughout several of its Articles. In addition, the Costa Rican Civil Code (CC) establishes certain duties applicable to legal representatives that will also apply to directors who have been granted powers of representation. This document is intended as a general guide, and is not a substitute for appropriate professional advice. Nonetheless, the topics contained herein will aid directors to identify certain aspects of its duties that may merit special review or professional advice.
Disclaimer: This Check list may not be relied on as advice and is intended solely as a general and informative document. Due to the reduced number of publicly traded companies existing in the Costa Rican market, this Checklist has focused on the general duties of directors of Costa Rican corporations or sociedades anónimas.
Action/Issue
Comments/Notes
Before Appointment 1. Understand
The role that you are expected to assume in the
Acting as a director on a board of a Costa
company.
Rican company can range from a merely
If you will be granted powers to represent the
formal status, to an active role as the
company.
company’s representative.
Whether the company has a corporate
All companies are not required by law to have
governance code.
a corporate governance code. However,
Whether you will be solely a director or if you will
companies subject to regulatory supervision
also have employee status in the company.
are required to have a corporate governance code. Some companies will voluntarily adopt a corporate governance code. Directors who are also employees are also subject to provisions of labour law, and are entitled to general employee rights.
2. Meet
Shareholders;
Obtain a briefing on the company’s current
President of the Board of Directors (if you are not
practices in connection with its board.
being appointed to such position);
Understand the role of the Board of Directors
Other directors;
as well as the role of specific directors in the
General Manager;
on-going business of the company.
Company comptroller;
Understand the company’s current practice
Action/Issue
Comments/Notes
Company lawyer; and
regarding Board meetings.
Company auditor.
Understand the role of the company Comptroller. Understand the company’s audit policies.
3. Review
Company’s articles of incorporations and by-
Understand the provisions of the company’s
laws;
articles of incorporation and by-laws, as well
Corporate governance code (if any);
as any specific duties imposed on directors
Board of Directors’ and Shareholders’ minutes
therein.
for the prior four years.
Understand the provisions of the company’s
Correspondence from the company’s comptroller
corporate governance code (if any).
and/or auditor for the past four years.
Detect and understand any specific
Approval of the company’s financial statements
instructions of guidelines for the company set
for the past year.
forth in shareholders’ or directors’ resolutions.
Auditor’s report regarding the company’s
Ensure that the company’s financial
financial statements (if available and/or
statements were duly approved by the
obtainable).
shareholders for the immediately preceding fiscal period. Request and review, if possible, an audit of the current financial statements of the company.
On-going Duties 4. Authorization of
In cases in which the articles of incorporation
The Board of Directors is responsible for
Transfer of Shares
establish this duty, the Board of Directors must
approving or rejecting the sale of shares,
(Art. 138 CoC)
review and approve or reject the transfer of
however, the silence of the Board will be
Action/Issue
Comments/Notes
shares of the corporation.
construed to authorize the sale.
Directors must call a shareholders’ meeting upon
A meeting agenda must be included in the
Shareholders’
the request of shareholders bearing 25% or
summons to a shareholders’ meeting and
Meetings (Art. 159
more of the corporation’s stock capital.
must list in detail the matters to be discussed.
and Art. 160 CoC)
Directors must also call a shareholders’ meeting
Matters not listed in the agenda that are
at the request of the shareholder of one share or
discussed may result in the annulment of the
more, when no shareholders’ meetings have
meeting.
been held for two consecutive periods or when
The agenda may not include generic or catch-
the meetings held within such periods did not
all meeting items.
5. Calling of
refer to the matters specified by law for Ordinary Shareholders’ Meetings. 6. Preside and act as
The President and Secretary of the Board of
Unless an ad hoc President and Secretary are
Secretary in
Directors shall act respectively as president and
appointed the directors appointed as such on
Shareholders’
secretary of the shareholders’ meetings, unless
the Board must act as president and secretary
Meetings (Art. 168
the corporation’s articles of incorporation state
of the shareholders’ meetings. In this case, the
and Art. 173 CoC)
otherwise or an ad hoc president and/or
pertinent directors are responsible for ensuring
secretary are appointed in the pertinent meeting.
that there is sufficient quorum for the meeting and that the company’s comptroller is present.
7. Reports and
At the request the shareholders in a
The President of the Board of Directors may
Clarification (Art. 173
shareholders’ meeting, the directors shall be
refuse to disclose information when such
CoC)
obligated to provide a report and/or clarification
action is deemed contrary to the company’s
Action/Issue
Comments/Notes
regarding any matters included in the meeting’s
interests. However, this decision may be
agenda.
overruled by shareholders bearing title to 20% or more of the company’s shares.
8. Transcription of
The President and Secretary of the Board of
In the event that the shareholders’ meeting
Minutes and Signing
Directors must sign the minutes of the
was not summoned in accordance with the
of Corporate Books
shareholders meetings that are transcribed in the
company’s by-laws, but rather was constituted
(Art. 174 and Art.
shareholders’ meeting minute book, unless other
by the simultaneous presence of all of the
158 CoC)
individuals are appointed as ad hoc president
company’s shareholders, the President and
and secretary.
Secretary must ensure that such circumstance is stated in the minutes of the meeting and that all shareholders sign the shareholders’ meeting minute book.
9. Representation of
The President of the Board of Directors shall be
Costa Rican courts have determined in this
the Corporation (Art.
the judicial and extrajudicial representative of the
specific aspect, that the powers of the
182 CoC)
corporation. Additional Board members may be
President of the Board of Directors may not be
designated to represent the Corporation as well,
limited via provisions in the articles of
subject the powers granted to them via the
incorporation or by-laws.
articles of incorporation.
The President of the Board of Directors is by law responsible for the actions of the company, and may be even be specifically liable criminally in the case of fraudulent or negligent bankruptcy of the company.
Action/Issue 10. Personal
Comments/Notes
The appointment as director is personal in
The duties and responsibilities of directors are
Designation (Art. 183
nature, and thus each director must act directly
personal and may not be delegated to third
CoC)
and may not delegate its appointment.
parties. Directors would continue to be liable regardless of any delegation made in contravention of this provision.
11. Duty of Continuation (Art. 186 CoC)
Directors must continue to fulfill their duties until
There are two perspectives to this provision: (i)
their respective successor have been legally
that the pertinent director must continue to
enabled to exercise the position.
perform its duties until the new director has been appointed; and (ii) that the pertinent director must continue to perform its duties until the appointment of the new director has been registered in the Public Registry. The second interpretation has generally been favoured due to the fact that a Director would not be able to legally act before third parties, until its appointment has been registered. This is particularly the case when the director is also granted powers to represent the company in accordance with the company’s articles of incorporation or by-law.
12. Issuance of By-laws and Regulations (Art.
The Board of Directors must issue the
Although this attribution exists in the CoC, in
corporation’s by-laws and regulations.
practice, it is uncommon for a Board of
Action/Issue 188 CoC)
Comments/Notes directors to issue by-laws and/or regulations, and rather, the corporation is governed by its articles of incorporation and any modifications thereto.
13. Directors’ Liability (Art. 189 CoC)
Directors are obligated to act with the due
Board members are jointly liable before the
diligence of an attorney-in-fact in fulfilling the
shareholders, except to the extent certain
duties that are imposed on them by law or
specific responsibilities are assesses on a
articles of incorporation and are jointly liable
particular director, in which case, only such
before the company for any damages derived
director would generally be liable for actions or
from their failure to observe such duties, unless
omissions relation to such responsibility.
such failure is derived from specific duties of one or more members of the Board. 14. Abidance of Powers (Art. 1262 CC)
Directors who have been granted the power to
In addition to the President of the Board of
represent the corporation must abide by the
Directors, who is the company’s legal
terms of their respective powers, unless
representative by law, other directors may also
authorized by law to act otherwise.
be granted powers to represent the company, whether via the articles of incorporation or bylaws or via powers granted by the shareholders or another legal representative who is entitled to delegate its powers.
15. Refrain from Acts
Directors who have been granted the power to
This duty requires that the pertinent director
Pernicious to the
represent the corporation must refrain from
exercise the diligence of a family head (in
Corporation (Art.
exercising their powers when doing so may be
Spanish “padre de familia”) which is a duty of
Action/Issue 1263)
Comments/Notes
manifestly pernicious to the corporation, or when
diligence originally derived from the
the damages that may be produced would not
Roman/Civil Law system. This duty requires
have been foreseen.
that the director act as a good family head or parent would act in a comparable situation.
16. Refrain from
Directors who have been granted the power to
Although this section of the CC only refers to
Contracting with the
represent the corporation may not purchase
these specific scenarios, Costa Rican courts
Corporation (Art.
goods owned by the Corporation that have been
have interpreted that this duty encompasses a
1263 CC)
instructed to be sold, nor may it sell to the
general prohibition to contract with the
Corporation goods of its own, unless expressly
company for personal benefit, unless
authorized via a shareholders’ meeting. In
expressly authorized by the shareholders.
addition, Directors in this context may not borrow
Directors should disclose any situations which
money that the Corporation has instructed it to
may result in their direct or indirect contracting
lend, unless it has been expressly authorized as
with the company, and request specific
stated below.
shareholder authorization for any such actions.
Directors having powers of representation are
Directors shall have the obligation to prove the
Impossibility to Act
obligated to give notice to the company when
existence of the Act of God or force majeure
(Art. 1267 CC)
facing circumstances that make it impossible for
that did not allow the performance of the
them to act in accordance with the instructions
required actions.
17. Duty to Inform of
received. In addition, in such context, the director is also obligated to undertake the necessary preventive measures as required by the circumstances. 18. Obligation of
Directors having powers of representation shall
This duty exists in addition to the general
Action/Issue
Comments/Notes
Accountability (Art.
also be accountable for all actions performed in
director’s liability stated in point 13 above, and
1269 CC)
exercise of their powers of representation and
is applicable to actions performed in exercise
must report to the company on such when so
of powers of representation.
requested. Self Defence 19. Corporate authorization
The risk of liability may be reduced by ensuring
Consider submitting the general
that the guidelines for your actions have been
business/management plan for the approval of
duly approved by the shareholders.
the shareholders.
Corporate governance codes and rules may aid
Identify actions that are not part of the ordinary
in establishing internal responsibility and rules
course of business and seek specific
for decision making.
shareholder approval for such actions. Ensure that the company’s financial statements are approved by the shareholders at the end of each period, as this will release you from liability to a certain extent in connection with such period. Consider that solely by being present at a Board of Directors meeting you are assuming responsibility for the resolutions and actions derived therefrom, unless you object and perform the necessary actions inform such actions to the shareholders, comptroller, or other body as may applicable for the company.
Action/Issue 20. Director and/or employment status
Comments/Notes
Your duties and liabilities may be different
Understand what your specific purpose/role is
depending on whether you are only a director, or
in the company and act accordingly.
if you are also a representative or employee of the company. 21. Insurance
22. Resignation
Liability insurance may be available to a certain
Review any applicable insurance policies and
extent to protect you from claims.
understand any exclusion that may apply.
Resignation per se will not release you from
If possible, try to have the effective date of
liability or from your duty of continuation.
your resignation coincide with the date of
You may continue to be liable until such time as
registration of the director substituting you.
the revocation of your appointment is recorded
Seek a settlement document and/or
and you are granted a settlement.
shareholder approval of the actions performed during your appointment as director, and a release from any claims derived therefrom.
23. Personal assets
Asset protection measure may be considered by
Specific advice should be sought out in
directors in order to reduce the risk of having
connection with this alternative.
personal assets affected by liabilities arising from actions performed as director.