The resignation of the sole director

The Capital Companies Act provides that the administration of the company may be entrusted to a sole administrator, to several joint or several administrators, or to a board of directors. In addition, the administrators may be an individual or a legal entity, and to be an administrator it is not necessary to be a shareholder.

n practice, there are not few companies that use the sole administrator as a form of administration, being more frequent that this occurs in small limited liability companies or in family companies.

Thus, the appointment of the sole director can be made in the articles of incorporation itself or subsequently by resolution of the General Meeting of Shareholders, taking into account that any agreement that alters the way of organizing the administration of the company (changing from a sole director to several directors, either jointly or severally, or to a board of directors), whether or not it constitutes a modification of the articles of incorporation, must be recorded in a public deed and registered in the Commercial Registry.

But, what happens when the sole director, for whatever reason, wishes to resign from his position, can the sole director of a company resign at any time? Pursuant to Article 147. 1. 1. 1º of the Mercantile Registry Regulations (hereinafter “MRR”), “the registration of the resignation of the administrators can be practiced by means of a written resignation of the position granted by the administrator and reliably notified to the company, or by virtue of certification of the minutes of the General Meeting or of the Board of Directors, with the signatures notarized, in which the presentation of said resignation is recorded“.

However, despite the provisions of Article 147 MRR regarding the possibility of registering the resignation of directors by means of a written resignation and reliable notification to the company, special care must be taken when the resigning director is the sole director of the company.

Thus, it must be taken into account that, if the resignation of the sole director occurs without the appointment of a new director, the company would be left in a serious situation, as the corporate body would be paralyzed, which would prevent the operation of the company and, as a consequence, the existence of a cause for dissolution.

Thus, Article 363.1. d) of the Capital Companies Act establishes, among other causes, that the capital company must be dissolved due to the paralysis of the corporate bodies in such a way that it is impossible for them to function.

For this reason, both the doctrine of the Supreme Court and the General Directorate of the Registry and Notaries, based on the duty of diligence established in Article 225 of the Capital Companies Act for directors, which provides that “the directors must perform the duties imposed by the laws and the bylaws with the diligence of an orderly businessman, taking into account the nature of the position and the functions attributed to each one of them; and subordinate, in any case, their particular interest to the interest of the company“, it is understood that, in the case of a sole director and in order for his duty of diligence to be fulfilled, once the decision to resign as sole director has been taken, he must call a General Meeting of Shareholders at which his resignation and the appointment of a new director must be included on the agenda.

When the date of the General Meeting of Shareholders arrives, it may happen that the Meeting accepts the resignation of the sole director and appoints a new director or that the Meeting does not appoint a new director. In this case, it will be understood that the resigning sole director has fulfilled his duty of diligence and cannot be required to continue in office, so that he can resign and cease his duties. The accreditation of the convocation of the Meeting will serve him so that his obligation of diligence can be understood to have been fulfilled.

In summary, the most prudent way to proceed, once the decision has been made to resign as sole director, is to send the company a reliable communication of the resignation as director; to call a General Shareholders’ Meeting that complies with the legal and statutory requirements, in which the resignation and the appointment of new director/s is/are included in the agenda; and to indicate in the resignation communication, as the effective date of the resignation, the day that has been indicated in the call for the holding of the General Shareholders’ Meeting.