The Corporate Legal Counsel - regulated in Law 39/1975of 31 October, and Royal Decree 2288/1977 - is a practicing lawyer who advises the Directors, management body of companies and other business undertakings like cooperatives – in the decision-making process, when adopting resolutions including the implementation of shareholders resolutions.
The Corporate Legal Counsel is responsible to ensure that the Directors decisions and resolutions are adopted in accordance with the law, not only formally (e.g. confirming that they are adopted at duly held meetings, and with the necessary quorums and votes - whose intervention must be recorded in the minutes and corporate records), but also in substance -e.g. whether the content islaw-compliant warning of the implications of non-compliance with the law-.
It is mandatory for companies domiciled in Spain, with at least € 300,506.52 share capital, at least € 601,1012.10 total income, or more than 50 employees, and also for foreign companies with branches with the same level of income and employees.
It has recently become crucial due to the strengthen of Governance controls especially in the area of Corporate Liability and Directors and Officers liabilities, and the scope and requisites of thebusiness judgement rule in article 226 of the Spanish Companies Act accordingto which, in strategic and business decisions subject to corporate discretion,the standard of diligence of an orderly entrepreneur is deemed to have been fulfilled when the Directors act in good faith, without personal/conflicting interest, with sufficient information and through the appropriate decision-making process.
The Corporate Legal Counsel is key in compliance programs that are required to protect the Companies from corporate criminalliability and Directors’ liabilities.
A Corporate Legal Counsel provides continued legal certainty by reducing legal risks in decision-making processes and result in cost savings as it reduces legal and tax risks and contingencies, both for companies subject to obligation and those others that opt to appoint one,beyond the occasional external advice to which they may resort.
It also contributes to the professionalization of management, which is particularly useful particularly in family-owned businesses which, due to the strong presence of family members of shareholder families, are particularly exposed to mix family economies with businessfinancial aspects, helping professionalize management.
The Corporate Legal Counsel plays a key role in reinforcing corporate governance and keeping high standards of diligent management.
How to appoint a Corporate Legal Counsel?
The Company may have a Corporate Legal Counsel with the education, experience and professionalism required, as part of its organizational chart through an employment relationship or through a service agreement with several options on appointment with different pros and cons:
- External counsel through service agreement, who provides high specialization and experience in a wide range of cases in professional practice.
- Secretary of the Board of Directors (whether or not a Director): It can only be appointedwhen there is a Board of Director, while the position as Corporate Legal Counsel advises the management body, regardless a single Director or various Directors including a Board of Directors. If the Secretary of the Board is also a practicing lawyer, the parties, Company and Secretary may agree to extend responsibilities to those of a Legal Counsel.
- In-houselawyer employee being a duly registered, practicing lawyer, quite common in large companies and groups, who usually has first-hand knowledge of the business, although on the other hand, may be more exposed, and be affected by inability to act as solicitor for the business undertakings in certain situations.
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