Different players, different roles
Within the company every player has its own role and all players are supposed to work together to achieve the best results.
The shareholders
The shareholders generally provide money to the company in turn for which they receive shares in the capital of the company. The shareholders get together from time to time in a general meeting of shareholders. Such a meeting is in any case required for the shareholders to be presented with the annual financial statements of the company to approve. This way they keep up to date on how the company is doing. If the company is making profit, the shareholders can receive a dividend distribution. In that way they can make back their investment.
The law and the articles of association of the company will define the exact rights of the shareholder for a specific company. Often the shareholders have the right to appoint and dismiss managing directors. This might give the impression that the shareholder is the ultimate boss in a company but this is not the case. The shareholders can give the managing directors general guidance on where they want the company to go but they cannot give specific instructions. And if the board of managing directors decides to go a different way, the shareholders are not free to dismiss the managing directors without a good reason.
The board of supervisory directors
Some companies have a supervisory board. The supervisory board has as a role to supervise and advise the board of managing directors. Sometimes the supervisory board also has the power to appoint, dismiss or suspend managing directors. However, just like the shareholders the supervisory board cannot give specific instructions to the board of managing directors. And even if they disagree with a decision of the managing directors, they cannot do anything about it, if such a decision is not clearly to the disadvantage of the company and the managing directors can motivate the decision.
The directors
From the above it has already become clear that the steering power within the company truly lies with the directors. The Board of Managing Directors, existing out of the statutory managing directors, is charged with the management of the company. This task consists of (1) the management of the day to day business of the company and (2) to represent the company in dealings with third parties.
In this context it is good to be aware about the difference between statutory managing directors and nominal managing directors. Statutory directors are appointed by the shareholders or by the Supervisory Board, as the articles of association may prescribe. A statutory director can be a natural person or a legal person. Statutory managing directors are registered with the Aruba Chamber of Commerce as managing director. The nominal managing directors are not. Nominal managing directors are in fact normal employees of the company that have a high position and an accompanying title. To dismiss a nominal managing
director the normal labor law frameworks applies.
Statutory managing directors have pursuant to the articles of association automatically the power to represent the company. Sometimes the articles of association provide that that power needs to be shared jointly with another statutory managing director. This is also often called the ‘two signatures-clause’. The articles of association can also provide that certain decisions need the approval of the Supervisory Board. As mentioned such approval cannot be unreasonably withheld. Furthermore, such an approval clause can only regard important company decisions. Often articles of association provide a monetary threshold. For example, all contracts with third parties exceeding an amount of USD 50,000 require approval of the Statutory Board. The amount at which the threshold is set depends on the capital and type of business of the company. It is important to note that such a restriction on the power of the statutory managing directors to represent the company cannot have the effect that relatively small decisions require approval of the Supervisory Board. This would mean that the Supervisory Board would sit on the chair of the managing directors and that is simply not the right place. A nominal managing director only has the power to represent the company if that power has been granted to him by one or more statutory managing directors. In that sense the power of representation of a nominal director is
a derivative power.
Who are you dealing with?
Don’t be confused by titles like CEO or CFO and always check if a director is a statutory or a nominal managing director. If you are dealing with a statutory managing director check if his power to represent the company has been limited in or pursuant to the articles of association. If you are dealing with a nominal managing director check if his powers to represent the company have been limited in any way when they were conferred on him.
“If you run into a problem or have questions regarding the above, visit www.ekvandoorne.com for more information or contact me at huiskes@ekvandoorne.com.”