The Company Director Checklist Costa Rica

The Company Director Checklist – Costa Rica Contact: [email protected] [email protected] Item Section Understand: The rol...
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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

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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.