The Board of Managers and the Sole Manager
Who runs a limited liability company (S. de R.L.), what duties they hold and what they answer for. The essentials for filling out your annual meeting.
- A limited liability company is managed by a Board of Managers (a collective body) or a Sole Manager.
- They are appointed and removed by the Partners' Meeting, the company's supreme body.
- In an S. de R.L. the owners are partners holding equity interests, not shareholders holding shares.
- The role is personal, and they answer for their acts on civil, tax, criminal and joint (solidary) grounds as a body.
Who can serve
Anyone legally capable of engaging in commerce may be a Manager or Sole Manager, whether or not they are a partner. There is no nationality or residency requirement. Because the appointment is personal, each Manager acts personally.
Foreign partners commonly appoint some of their own officers or employees as Managers, to ensure the body pursues their economic and corporate interests.
What it does
The body manages the company. When it is collective, the Board of Managers adopts its resolutions by majority vote, unless the bylaws require a higher majority or unanimity. In practice, the body oversees day-to-day operations and may delegate them to officers (for example, a CEO), always following the Partners' Meeting's instructions and complying with the law and the bylaws.
Managers who do not vote, or who vote against a resolution, are not liable for that matter.
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 Manager has a conflict vis-à-vis the company, they must disclose it to the other Managers and abstain from the related resolution or deliberation.
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 the partners' contributions, that corporate books are up to date, and that the required publications are made in a capital reduction.
- Keep the special partners' ledger, with each partner's name, domicile and contribution, the transfers of equity interests and any liens on them.
- Prepare and present the balance sheet and financial statements for the year to the Partners' Meeting.
- Attend Board of Managers 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 and from approving the distribution of profits before they are determined in the financial statements and the legal reserve and bylaws are satisfied.
What they answer for
Civil liability. They answer for the damages they cause by breaching their duties. The claim may be brought by the Partners' Meeting, or by partners representing 25% or more of the capital, provided the claim covers the full amount of the liabilities and the claimants did not vote to release them. Whatever is recovered benefits the company, not the partners.
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 Manager 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, Managers are jointly liable with the company for, among others: the existence of the partners' contributions; compliance with the requirements to distribute profits; the existence and maintenance of the accounting and records; the exact compliance with valid resolutions of the Partners' Meeting; setting aside the legal reserve; and any act taken after a cause for dissolution has arisen.
Current Managers may also be jointly liable for their predecessors' irregularities if, knowing of them, they fail to notify the Surveillance Committee in writing (where the company has one).
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 partner 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
The starting point is straightforward: a Manager who votes against or does not vote on a resolution is not liable for that matter. For the body's joint liability, a Manager 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 Partners' Meeting, held within the first four months of the year, usually ratifies and approves the body's acts for the prior year, releasing it from liability. That release is limited to civil liability and to claims by the partners who grant it; anyone who does not approve it keeps their claim.
- Your annual meeting ratifies the acts of the management body for the prior year.
- That's why the questionnaire asks who sits on the Board of Managers (or who the Sole Manager is) and whether they change (ratified or replaced).
- Being clear on who manages and what they answer for avoids surprises when you sign the minutes.
Indemnification and insurance
In practice, companies typically indemnify their Managers 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 managers' and officers' liability (D&O).
This article is a general informational summary and is not legal advice for any specific case. For your particular situation, consult a Ramos Urías lawyer.