The Board of Directors and the Sole Director

Who can serve

Anyone legally capable of engaging in commerce may be a Director or Sole Director. There is no nationality or residency requirement. Because the appointment is personal, each Director exercises their rights and duties personally.

What it does

The Board has authority to carry out all acts related to the corporate purpose; the Meeting may limit those powers in the bylaws. In practice, the body oversees day-to-day management and does not run it, because the Meeting or the Board itself may delegate operations to officers such as a CEO or General Counsel.

It must also follow the Shareholders' Meeting's instructions and comply with the law and the bylaws. Each year it presents an annual report to the Meeting on the year's operations, accounting policies and financial statements.

Its duties

Duty of care. Act prudently and with the same care they would apply to their own affairs.

Duty of loyalty and conflicts of interest. If a Director has a conflict vis-à-vis the company, they must disclose its nature and extent to the other Directors and abstain from the related resolution or deliberation. The LGSM does not prohibit a Director from voting when the conflict is against a third party, for example the shareholder who appointed them.

Confidentiality. They must protect the company's non-public information; this duty survives for one year after leaving the role.

Specific duties set by law

• Verify the authenticity of capital contributions, that corporate books are properly kept and up to date, and that the required publications are made in a capital reduction.
• Present the annual report to the Meeting (the year's operations, accounting policies and financial statements).
• Authorize and verify the issuance of share certificates.
• Attend Board sessions and abstain from deliberating or voting on matters where they have a conflict of interest.
• Remain in the role until the person appointed to replace them accepts and takes office.
• Abstain from: acting beyond the corporate purpose; approving dividends before profits are determined in the financial statements and the legal reserve and bylaws are satisfied; and authorizing the company to buy its own shares (except by judicial award, art. 134 LGSM).

What they answer for

Civil liability. They answer for the damages they cause by breaching their duties. The claim may be brought by the Meeting, or by shareholders representing 25% or more of the capital, provided that (i) the claim covers the full amount of the liabilities, not just the claimant's own interest, and (ii) the claimants did not vote to release them. Whatever is recovered benefits the company, not the shareholders.

Tax liability (joint). They may be jointly liable for the company's taxes if, during their tenure, the company destroyed or hid its accounting records, or fell into situations such as: failing to register with the RFC; failing to report a change of tax domicile (or vacating the registered one); not keeping accounting records; not remitting withheld taxes; issuing or receiving invoices for nonexistent transactions; among others.

Criminal liability. It arises only if the Director intentionally and personally takes part in fraudulent acts or others defined as crimes.

Joint (solidary) liability as a body. Unless they expressly object to the matter when it is discussed and voted, Directors are jointly liable with the company for, among others: the existence of shareholders' contributions; compliance with the legal and statutory requirements to distribute dividends; the existence and maintenance of the accounting and records; the exact compliance with valid resolutions of the Meeting; setting aside the legal reserve; damages from authorizing the purchase of the company's own shares; and any act taken after a cause for dissolution has arisen.

In an insolvency proceeding

If the company enters insolvency (concurso mercantil), the body must keep the business in its ordinary course and assist the persons appointed by the court. It may incur civil or criminal liability if the court finds, among other things, that it failed to abstain in a conflict of interest, favored one shareholder over the others, acted in its own interest or a third party's, or spread or altered the company's information.

How they are released from liability

Joint liability stems from acts of the collective body. A Director is released when they are not personally responsible and they stated their objection at the session where the matter was addressed. Note: missing the session does not release you. Someone who is absent must inform themselves of what was decided and, where appropriate, object in a timely manner.

In addition, the Annual General Meeting, held within the first four months of the year, usually ratifies and approves the Board's acts for the prior year, releasing it from liability. That release is limited to civil liability and to claims by the shareholders who grant it; anyone who does not approve it keeps their claim.

Indemnification and insurance

In practice, companies typically indemnify their Directors and senior officers for damages arising from the lawful performance of their role, except for willful misconduct, negligence or bad faith. They may also take out insurance (or bonds or sureties) covering directors' and officers' liability (D&O).