Board of Directors: How does the proportional appointment system of directors for minority shareholders work?

In corporate matters, minority shareholders may find themselves excluded from decision-making bodies, which generates tensions and, at times, legal conflicts. However, the Spanish legal system provides mechanisms to ensure more equitable participation in the management of companies.

One of the most relevant is the proportional appointment system of directors, provided for in Article 243 of the Ley de Sociedades de Capital (LSC, Spanish Companies Act), whose purpose is to facilitate the representation of minority shareholders on the Board of Directors of Sociedades Anónimas (S.A., public limited companies). In the case of Sociedades Limitadas (S.L., private limited companies), this mechanism does not apply by default and is only possible if it has been expressly agreed in the company’s bylaws.

What is a Board of Directors?

The Board of Directors is a collegiate management and representative body of the company, whose existence must be provided for in the bylaws. It is more common in Sociedades Anónimas, where its regulation is more detailed, whereas in S.L.s simpler forms of management are more frequently used (sole director, joint or several directors).

The members of the board (directors) are appointed by the general meeting of shareholders. In S.A.s, the board itself may also provisionally appoint new directors to fill vacancies through the mechanism of co-option (Art. 244 LSC).

What is the proportional appointment system?

Article 243 LSC grants minority shareholders of an S.A. the right to appoint directors if they group together a number of shares equivalent to the capital required to obtain a seat on the board, according to a proportional formula.

Its operation is as follows:

Shareholders may pool their shares until they reach at least the percentage of the share capital resulting from dividing the total capital by the number of board members. Once this threshold is reached, they are entitled to directly appoint a number of directors proportional to the capital they represent.

Example:

In an S.A. with share capital of 500,000 euros and a board of 10 members, the threshold to appoint one director would be 50,000 euros (500,000 / 10).

A group of shareholders that aggregates that amount may appoint one director. If they reach 100,000 euros, they may appoint two.

The law does not require a minimum number of directors to apply this system, but its practical effectiveness increases in larger boards, where the capital needed to appoint a representative is lower.

This mechanism ensures pluralism in management, allowing minority shareholders to access key information, participate in strategic decisions, and exercise more effective oversight over management.

What rights does a minority shareholder have?

Minority shareholders have a set of rights recognised by the LSC, aimed at balancing power within the company and preventing abuses by the majority shareholder. Among the most relevant:

• Right to information (Arts. 196 and 197 LSC): access to documentation to be submitted to the meeting and, in some cases, to additional information relevant to the company’s management.
• Right to request the convening of a general meeting (Art. 168 LSC): provided they represent at least 5% of the share capital, both in S.L.s and S.A.s.
• Right to request the appointment of an auditor by the Mercantile Registry (Art. 265.2 LSC): when the company is not subject to mandatory audit and a 5% minority requests it.
• Right to bring a corporate liability action (Art. 239 LSC): when directors breach their legal or statutory duties.
• Right to challenge corporate resolutions (Arts. 204 et seq. LSC): when they are contrary to the law, the bylaws or harm the corporate interest in favour of majority shareholders or third parties.

What happens when the minority is blocked?

In practice, it may happen that the minority shareholder, despite these rights, suffers systematic blocking by the majority. Common examples include:

• Unjustified refusal to provide relevant information.
• Repeated exclusion from dividend distribution.
• Difficulties in exercising their right to proportional representation (in S.A.s).
• Adoption of resolutions harmful to the corporate interest.
• Approval of transactions for the exclusive benefit of the majority shareholder.

In such situations, the minority shareholder has legal and corporate actions available to protect their rights. Among others, they may demand judicial access to information, challenge harmful corporate resolutions, bring liability actions against directors, or even judicially claim the recognition of their right to appoint directors under Art. 243 LSC.

Conclusion

The proportional appointment system of directors is an essential instrument to strengthen balance and transparency in the management of Sociedades Anónimas. Although it does not apply automatically to Sociedades Limitadas, it can be provided for in the bylaws to offer minority shareholders an effective avenue of representation. Having a seat on the board not only enables oversight but also strengthens the minority shareholder’s bargaining power in strategic decisions. Acting with knowledge and professional support is key to enforcing these rights and avoiding internal conflicts escalating into litigation that is difficult to reverse.

---

ABOUT GAMERO & BRAVO ABOGADOS

Gamero & Bravo Abogados is a firm specializing in commercial law, commercial litigation, and arbitration, focusing exclusively on advising businesses. We offer strategic legal solutions tailored to sectors such as construction, real estate, finance, sports industry, and logistics, both in Spain and in international projects.

If you want to learn more about our services or need personalized legal advice, feel free to contact us at info@gamerobravo.com.

NEED HELP?

At Gamero & Bravo Abogados, we have a team of experts in resolving commercial disputes, designing complex contracts, and representing clients in international arbitrations. Write to us, and we will be happy to assist you.