Legal representative of a company
The shareholders of a company do not have any management rights and cannot perform any business on behalf of the company. On the contrary, the legal representative has the right to manage a company (Administrador in Spanish), to access the company’s funds, to sign contracts for the company, etc.
The law states that a shareholder can be a legal representative at the same time. However, a non-corporate shareholder may also be appointed as a legal representative. A legal representative may be a single person or a combination of persons.
Responsabilities of being a legal representative
The legal representative is the director of the company, who can perform any business on behalf of the company or authorize someone else (for example, a general manager) to manage a specific business.
The director is appointed by the General Meeting of Shareholders. Therefore, although shareholders are not allowed to intervene in the day-to-day management of the company, they can vote at the general meeting to appoint or remove the legal representative.The director has control over the operations and direction of the company.
In general terms, the approval of the legal representative (or the person authorized by him) is required to use the company’s funds to conclude contracts with clients.
Since the legal representative has full authority to represent the company, it is natural that the legal representative will be held liable if the company has problems under certain circumstances. Let’s talk about the circumstances under which a legal representative can be held liable:
-When a company goes bankrupt, the legal representative may be responsible for paying the debts. A company goes bankrupt, the shareholders are naturally not responsible, at most, only the money they invested did not come, but if it is the legal representative is a different story.
According to Article 163 of the Spanish Bankruptcy Law, the causes of bankruptcy of a company can be defined as fortuitous bankruptcy or guilty bankruptcy. Fortuitous is, as the name suggests, the failure of a company to operate because of external factors such as economic downturn, too much competition, etc. Guilty insolvency is due to some human factor or gross negligence. The legal representative has the right to supervise the company and if the bankruptcy is qualified as guilty, the court is likely to hold the legal representative responsible for the debt.
Related article: Company bankruptcy: responsabilities of the general manager
-The legal representative is responsible for paying the taxes owed by the company. The General Law on Taxation states that a company faces penalties if it misrepresents its income for the purpose of illegal tax avoidance, makes false accounts, or simply because it fails to file tax returns in a timely manner. The legal representative, as the director, will be directly responsible for the illegal acts if he/she is directly involved. If the legal representative is just negligent, then the tax office will recover the tax from the company first, and then from the legal representative if the company has no funds.
-The company owes social security contributions. As above, if a company fails to fulfill its obligation to pay social security contributions, the Administration has the faculty to recover from the legal representative. Usually, the a fist claims is addressed to the company. Only if the company ignores or fails to pay, they will try to recover from the director.
These are the most common situations in which the legal representative is liable. In addition, it should be noted that in the daily operation of the company, the legal representative is not liable for the debts of the company. For example, if a customer is injured by using the company’s products, it is the company, not the legal representative, who is responsible.
