THE SIMPLIFIED CORPORATION (SAS) AND "DE FACTO DIRECTOR" FIGURE: A RISK FOR ENTREPRENEURS?
"De Facto Director" term was introduced by Law 1258 of 2008, pointing out that, in the SAS, the natural or legal persons who, without being directors, meddle in a positive activity related to the management, administration or direction of the company, will fall into the same responsibilities and sanctions applicable to the company’s directors (Law 1258, of 2008, Art. 27, paragraph).
CORPORATE LAW
Lina Fernanda Sepúlveda Sánchez
2 min read
"De Facto Director" term was introduced by Law 1258 of 2008, pointing out that, in the SAS, the natural or legal persons who, without being director, meddle in a positive activity related to the management, administration or direction of the company, will fall into the same responsibilities and sanctions applicable to the company’s directors (Law 1258, of 2008, Art. 27, paragraph).
Determining who qualifies as a director is crucial for determining the subjects to whom the legal regulations of administrator, established in Law 222 of 1995, Art. 22 et seq., apply. Those who are not classified as directors may evade such regulations. However, in the case of de facto directors, the judge is responsible for establishing whether a person should be saddled with a responsibility typically associated with a director.
In this regard, the Superintendence of Companies (“SOC”), in the first ruling issued in the exercise of its jurisdictional functions, stated that a shareholder acted as a de facto director, and also indicated that the application of the figure enables these individuals to be required to fulfill certain duties, and it extends the responsibilities typically associated with directors, in order to mitigate agency issues between the company and the person acting as a director, i.e., the individual managing the corporate entity’s interests. (File No. 2019-01-075549, 2019).
This way, the SOC has applied de facto director figure to the majority stockholders, e.g., in cases of misappropriation of company assets. This figure has become a useful tool for minority shareholders being victims of expropriation processes.
The SOC has established some criteria to identify when a person acts as a de facto director, among which are: “(…) (i) managing the actions of other directors, (ii) compel the company to accept substantial responsibilities, (iii) be explicitly recognized by the company as an a director, (iv) introduce himself/herself to third parties as a director, and (v) make significant decisions for the operation of the company.” (File No. 820-78, 2017).
But should entrepreneurs be concerned about this figure? The answer is no. For a judge to apply the figure, the following conditions must be met:
(i) there must be an unlawful meddling in positive activities related to the management, administration, or direction of the company in an autonomous fashion, i.e., without being subject to orders issued from the corporate bodies. If not, it would be absurd to consider consultants or advisors —-who exercise the rights conferred on them to carry out the legitimate functions in the company — as de facto directors. (SOC, File No. 820-78);
(ii) the violation of the responsibilities legally enforceable on corporate directors must have occurred;
(iii) damages to the company caused as a result of the facto director’s breach of duties of directors.
Accordingly, although it is unclear why this figure only applies to SASs., it should not be seen as a risk for entrepreneurs. On the contrary, the purpose is the sanction of unlawful meddling in matters of the company by an individual who has not been designated as director, in order to protect the interests of the corporate entity, and the interests of the community of influence thereof, or the interests of the stakeholders, such as suppliers, creditors, clients, etc.