The International Comparative Legal Guide to: Corporate Governance 2010

The International Comparative Legal Guide to: Corporate Governance 2010 A practical insight to cross-border Corporate Governance Published by Global Legal Group with contributions from: Al Tamimi & Company Arnold Bloch Leibler Ashurst LLP Avbreht, Zajc & Partners Badri & Salim El Meouchi Law Firm Beiten Burkhardt Rechtsanwaltsgesellschaft mbh CMS Albiñana & Suárez de Lezo Cravath, Swaine & Moore LLP Elvinger, Hoss & Prussen Haavind Kunz Schima Wallentin Rechtsanwälte OG Lee & Ko Lenz & Staehelin Osler, Hoskin & Harcourt LLP Pachiu & Associates Roschier, Attorneys Ltd. Siemiątkowski & Davies Vellani & Vellani YKVN Lawyers

Chapter 14 Róger Pérez Grillo Fernanda Lacayo Genie 1 Setting the Scene Sources and Overview 1.1 What are the main corporate entities to be discussed? The main corporate entity to be discussed is Corporations (in Spanish: Sociedad Anónima), from now on referred to as Corporations. 1.2 What are the main legislative, regulatory and other corporate governance sources? General matters of corporate governance are regulated by the Code of Commerce, and more specific issues are addressed in the incorporation deed and bylaws of the Corporation. 1.3 What are the current topical issues, developments and trends in corporate governance? such appointment at any time, with the required quorum according to its constitutive documents. As well, the faculties of the Board of Directors are given by the Shareholders General Assembly, and may also be revoked by the latter. 2.2 Can shareholders be liable for acts or omissions of the corporate entity/entities? Shareholders can be liable for acts or omissions of the corporate entity but only up to the amount invested by them in the shares of that corporate entity. However, as mentioned above, the Board of Directors is composed of shareholders, and Directors are personally and severally liable for the non execution of the mandate granted by the Corporation or its management members, and by any violation to the law and/or to the constitutive documents of the Corporation. 2.3 Can shareholders be disenfranchised? In the year 2008 a reformed Criminal Code entered into force, which typified the illegal actions or omissions of directors, managers, comptrollers, auditors, legal representatives, administrators or shareholders of legal entities. In general, the Criminal Code of punishes the director, manager, comptroller, auditor, legal representative, administrator or shareholder who: (i) adopts a decision or agrees to something in his/her own personal benefit and is detrimental to the company or corporation; (ii) alters financial information, resulting in economic damage to the corporation, its shareholders or third parties; or (iii) consents to the execution of illegal acts (contrary to the law or the constitutive documents of the corporation), from which may result any damage to the corporation or the public. 2 Shareholders 2.1 What rights and powers do shareholders have in the operation and management of the corporate entity/entities? The Shareholders General Assembly is the maximum authority of the Corporation and as such may execute any act regarding the operation and management of the Corporation. However, the Board of Directors is generally the authority in charge of the operation and management of the Corporation and may adopt any decision regarding such matters. The Shareholders General Assembly shall appoint the members of the Board of Directors, which must be composed of shareholders, and shall have the faculty to remove A shareholder may be disenfranchised only in the case that he/she does not pay its total capital contribution after a certain established date. In such event, the shareholder will lose all its rights in the Corporation and any contributed amount. 2.4 Can shareholders seek enforcement action against members of the management body? Yes. Any shareholder may protest a resolution taken by the Board of Directors in opposition to the law and the constitutive documents of the Corporation and shall request to the corresponding Judge the suspension of the execution of such resolution and request its nullity. The decisions taken by the Board of Directors in opposition to the law and the constitutive documents of the Corporation do not produce liability for the shareholders, only the directors who approved the resolution are personally and severally liable. Those directors who protest such resolution within a period of 3 days will be free of responsibility. 2.5 Are there any limitations on, and disclosures required, in relation to interests in securities held by shareholders in the corporate entity/entities? There are no limitations or obligations of public disclosure in relation to interests in securities held by shareholders in the corporate entity. Nonetheless, pledges on shares of the Corporation must be registered in the Share Registry Book, and the pledgee should keep the share certificate pledged in his/her favour. 73

74 2.6 What shareholder meetings are commonly held and what rights do shareholders have as regards them? There are two types of shareholder meetings commonly held: (i) Ordinary General Assembly, which are to be held at least once a year, or the times established in the constitutive documents; and (ii) Extraordinary General Assembly, which will be held when the Board of Directors considers it convenient, or when it is requested by a minimum number of shareholders. Shareholders rights: (i) Shareholders representing at least 20% of the capital stock or less as established in the bylaws may request to the Board of Directors to summon an Extraordinary General Assembly. (ii) Under the same conditions mentioned above, shareholders may include any issue in the agenda for resolution. (iii) If the Board of Directors does not summon the shareholders to hold an Extraordinary General Assembly, after receiving a valid request from shareholders, the latter have the right to request to the corresponding Judge to summon and preside the meeting. (iv) To be summoned and informed of the agenda of the meeting at least 15 days of prior to the date in which the meeting will be held. Neither the day of summon nor shall the day of the meeting be included in the 15-day period. (v) To vote in the meetings. Each share held gives the right to one vote. The n Code of Commerce establishes that a shareholder may not represent more than 10% of the shares issued and no more than 20% of the present votes in the General Assembly. However, in reality this article is not applied. (vi) To review and approve the financial balance of the Corporation and the distribution of profits. (vii) To protest any decision taken in opposition to the law and the constitutive documents of the Corporation. 3 Management Body and Management 3.1 Who manages the corporate entity/entities and how? Generally, the Corporation is managed by a Board of Directors, which may or may not appoint a General Manager. The Board of Directors has the legal representation of the Corporation and usually this faculty is granted to the President. If the representation is not granted to a single Director, meetings shall be held, to agree by a majority, any issue regarding the operation and management of the Corporation. The faculties of the Board of Directors and of the President are established by the shareholders. 3.2 How are members of the management body appointed and removed? The Board of Directors must be composed only by shareholders of the Corporation, in other words, a person who is not a shareholder of the Corporation may not opt to be a Director of the same. The Directors are appointed for a fixed term which cannot exceed 10 years. However, before their term is over, the Directors may be, individually or totally, removed from their position by means of a duly held General Shareholders Assembly. The bylaws and incorporation deed of the corporation will determine if re-election of the directors is allowed, and in the case that such matter is not addressed in these documents, re-election will be allowed if agreed upon by unanimous decision of the shareholders. 3.3 What are the main legislative, regulatory and other sources impacting on contracts and remuneration of members of the management body? The contracts and remuneration of the members of the management body is usually addressed in the constitutive documents, and may also be approved in any Shareholders Meeting as part of the agenda. 3.4 What are the limitations on, and what disclosure is required in relation to, interests in securities held by members of the management body in the corporate entity/entities? There are no limitations or obligations of public disclosure in relation to interests in securities held by directors in the corporate entity. Nonetheless, pledges on shares of the Corporation must be registered in the Share Registry Book, and the pledgee should keep the share certificate pledged in his/her favour. 3.5 What is the process for meetings of members of the management body? The process to hold a meeting of the Board of Directors should be established in the bylaws of the corporation. Usually, a summons is required, as well as a minimum quorum, to legally hold the meeting. 3.6 What are the principal general legal duties and liabilities of members of the management body? The composition of the Board of Directors must be established in the incorporation deed or bylaws of the corporation. Usually the Board of Directors has at least a President and a Secretary; often it also has a Vice-president and Treasurer, however, the composition may vary. The principal customary duties of the President, Vice president, Secretary and Treasurer are: President: must preside the Meetings of the Board of Directors and has the legal representation of the Corporation. Vice-president: substitutes the President when such is absent. Secretary: keeps and updates the corporate books (Share Registry Book and Book of Minutes). Treasurer: keeps and updates the accounting books, reviews financial statements and keeps a record of petty cash. As for the liabilities, the members of the Board of Directors are not personally or severally liable for the responsibilities or obligations of the Corporation, except in the case that they do not execute their mandate or violate the law or constitutive documents. Directors who have not participated in unlawful conduct or those who protested such conduct will not be responsible. 3.7 What are the main specific corporate governance responsibilities/functions of members of the management body? The corporate governance functions of members of the management bodies are generally established by the shareholders, either in the bylaws of the corporation or agreed in a General Shareholders Meeting. 3.8 What public disclosures concerning management body practices are required? There are no public disclosures regarding management body practices required by law.

3.9 Are indemnities, or insurance, permitted in relation to members of the management body and others? Indemnities or insurances are not prohibited or mandated by the law. This is usually addressed in General Shareholders Meetings. 4 Corporate Social Responsibility 4.1 What, if any, is the law, regulation and practice concerning corporate social responsibility? Corporate social responsibility is not regulated by the law, this is a discretional matter. 4.2 What, if any, is the role of employees in corporate governance? The law does not regulate the role of employees in corporate governance, this is a discretional matter. 5 Transparency 5.1 Who is responsible for disclosure and transparency? The comptroller of the Corporation would be responsible to supervise the acts of the members of the Board of Directors and shall present a report to the shareholders annually. 5.2 What corporate governance related disclosures are required? Disclosures related to corporate governance are not required under n law. Nevertheless, if a Corporation supplies public services (i.e. electricity, water, transportation, among others) due to the condition of a concession holder of a contract granted by the government or any administrative company, such Corporation may be supervised by Agents of the Government or the administrative company, as it may apply. The purpose of this supervision is to verify compliance with the law and that the conditions of the concession are being met in favour of the public, reasons for which the accounting of the Corporation may be investigated. Furthermore, Corporations must publish their financial statements yearly in La Gaceta Diario Oficial (Official Newspaper). 5.3 What is the role of audit and auditors in such disclosures? Audits are not required under n law. 5.4 What corporate governance information should be published on websites? Nothing has to be disclosed or published regarding corporate governance. Nevertheless, as mentioned before; Corporations must publish their financial statements yearly in La Gaceta Diario Oficial (Official Newspaper). 75

Róger Pérez Grillo BAC Building Kilometer 4 ½ of the Masaya Road Managua Tel: +505 2270 0480 Fax: +505 2274 4123 Email: Roger.Perez@ariaslaw.com URL: www.ariaslaw.com Róger has a Masters Degree in Labour Law from Centro de Estudios Garrigues, Madrid, Spain (2009) and postgraduate studies in Finance from Universidad Americana (UAM) in Managua, (2008). He obtained his law degree from Universidad Americana (UAM) (2007) and a Business Administration degree at the same University (2008). He is authorised as a Practicing Attorney and Notary Public by the Supreme Court of Justice of (2008). Roger joined in 2006. He has led and participated in legal due diligences for the acquisition and financing of different types of companies, which includes the preparation and revision of documents in physical and virtual data rooms, the structuring of checklists and, the drafting of final reports. He provides counselling to national and international clients in contracts, corporate affairs and investments. He has also advised some clients in the establishment of Free Trade Zones in. Fernanda Lacayo Genie BAC Building Kilometer 4 ½ of the Masaya Road Managua Tel: +505 2270 0480 Fax: +505 2274 4123 Email: Fernanda.Lacayo@ariaslaw.com URL: www.ariaslaw.com Fernanda Lacayo obtained her Law Degree in Universidad Americana (UAM), and has postgraduate studies in Corporate Law from UAM. Fernanda joined the Corporate Department of in 2007. She has participated in legal due diligences of national companies, she has provided day to day legal advice to national clients, advised clients in the establishment of free trade zones, she has led and participated in real estate transactions, and she has helped in structuring corporate governance and management body of a company. is unique in Central America, for it operates as a single firm rather than as an alliance of firms and currently has seven, fully-integrated offices in five countries: Guatemala; El Salvador; Honduras; ; and Costa Rica. It has become, today, not only a solid, but also an innovative legal firm that continues to spread its influence throughout the region. For clients, choosing the right legal partner is key and, with its core experience over a broad range of practice areas and industries, as well as its dedicated lawyers, unlocks the region s intricacies and subtle differences in laws for them. The firm is truly a one-step, one-stop law firm offering clients the benefits and demonstrated advantages that come from having all their regional businesses served from one, fully integrated base. 76