Corporate Governance: Structures That Scale With Your Company

Corporate governance refers to the system of rules, practices, and structures by which a company is directed and controlled, governing the relationships between shareholders, the board of directors, and management. In Spain, the foundational corporate governance framework is established by the Ley de Sociedades de Capital (LSC, Legislative Royal Decree 1/2010), supplemented for listed companies by the CNMV's Good Governance Code for Listed Companies and the requirements of Regulation (EU) 2017/828 (Shareholder Rights II). Key instruments include the articles of association (estatutos sociales), board regulations, shareholders' agreements (pactos parasociales), and internal codes of conduct, all of which must be aligned with mandatory provisions of the LSC.

This service is part of our legal advisory practice.

When informal governance becomes a brake on growth

Spanish companies go through a critical transition at some point between 10 and 50 employees: the moment when informal governance — the founder who decides everything, partners who call each other before making a decision — ceases to be enough. The problem is not just inefficiency. The problem is that without formal governance instruments, every conflict becomes a crisis, every strategic decision depends on the personal persuasive capacity of each partner, and the company cannot present itself to investors, banks, or major clients with the credibility they require.

The most common failure patterns in the informal governance of mid-sized Spanish companies are: partners with equivalent powers but divergent strategic visions with no resolution mechanism; absence of clear rules on the transfer of shareholdings when a partner wants to exit; non-founder executives with informal authority but no formal position in the governance structure; and family businesses where the distinction between ownership and management is not formalised, generating conflicts when the second generation joins the company.

The solution is not to import the governance model of a large listed company. It is to build for the real company — its size, its sector, its ownership structure, its horizon — the minimum instruments necessary for decisions to be taken predictably, conflicts to have a resolution channel, and the company to scale without governance becoming the bottleneck.

Corporate governance in the family business: separating ownership from management

Family businesses represent more than 85% of the Spanish business fabric and face specific governance challenges. The principal one is the confusion between the three overlapping circles found in every family business: the family (with its dynamics, bonds, and conflicts), the ownership (with its return and control expectations), and the management (with its demands for professionalism and results). When these three circles lack governance instruments to regulate them, family conflicts transfer directly into the business with a multiplier effect.

The protocolo de empresa familiar (family business protocol) is the central instrument for this regulation, but it is not sufficient on its own. The protocol must be coordinated with the articles of association (which must reflect the transfer restrictions agreed in the protocol), with the board of directors regulations (which must govern family representation on the governance body and its relationship with independent directors), and with the remuneration policy (which must establish objective criteria for the remuneration of family members working in the company, separate from the dividends they receive as owners).

The second generation is the critical moment. When the first generation runs the company under the founder’s leadership, informal governance works. When the second generation joins — with multiple heirs, diverse interests, and frequently different levels of involvement in the business — without a protocol establishing the rules of the game, the statistical outcome is conflict that paralyses or fragments the company. We advise family businesses at this transition point with a pragmatic approach that combines corporate law with the organisational psychology of family systems.

Governance requirements by company stage: what regulation and markets demand

Corporate governance obligations in Spain are graduated, and failure to comply carries increasing practical consequences depending on company size and type. For unlisted limited liability and joint-stock companies (sociedades limitadas and sociedades anónimas), the minimum obligations include: preparation of annual accounts within three months of the financial year-end, filing of accounts at the Mercantile Registry within seven months, holding the ordinary general meeting in the first six months of the financial year, and compliance with article 363 LSC obligations in cases of grounds for dissolution. Persistent failure to file annual accounts closes the company’s registry file (hoja registral), preventing registration of any subsequent act — including capital increases, articles amendments, or new powers of attorney.

For Public Interest Entities (entidades de interés público, EIP) — companies with more than 500 employees and assets exceeding 20 million euros or turnover exceeding 40 million — regulation requires an audit committee with a majority of non-executive directors, an auditor selection policy, and a non-financial information statement (estado de información no financiera, EINF) covering corporate governance, social policy, and environmental matters.

For companies considering a stock market listing within a three-to-five-year horizon, the early implementation of CNMV Good Governance Code standards — independent directors, audit and remuneration committees, general-meeting-approved remuneration policy, annual corporate governance report — is the most cost-effective investment that can be made before initiating the admission to trading process. Institutional investors participating in an IPO increasingly apply ESG and corporate governance criteria to their investment decisions.

International corporate governance standards: OECD, Cadbury, and their application in Spain

The academic and practical debate on corporate governance across OECD countries converges on a set of principles that have evolved from the Cadbury Report in the United Kingdom (1992) to the G20/OECD Principles of Corporate Governance of 2023. These principles — board independence, transparency, accountability, and shareholder equity — have informed the CNMV Good Governance Code and the practice of institutional investors globally.

For Spanish companies operating in international markets or seeking capital from foreign investors, the gap between the typical governance practice of a mid-sized Spanish company and the standards those investors expect is one of the main factors that complicate capital-entry transactions. An Anglo-Saxon fund or a European institutional investor analysing a Spanish company expects to find: a board with at least one third independent directors, a functional audit committee, a performance-linked remuneration policy, and a documented internal control system. We help Spanish companies close that gap pragmatically and within the timeframe required by the transaction that is driving the change.

Regulatory Framework: LSC, CNMV Good Governance Code, and EU Law

The corporate governance regulatory framework in Spain is structured across three levels:

Primary legislation: the Ley de Sociedades de Capital (LSC, Legislative Royal Decree 1/2010) establishes the minimum mandatory governance rules for Spanish capital companies — composition and powers of the management body, shareholders’ meeting procedures, director duties, related-party transaction rules, and annual accounts obligations. Amendments introduced by Law 31/2014 (promoting the quality of corporate governance) and Law 5/2021 (transposing Shareholder Rights II Directive) have progressively strengthened shareholder rights and board accountability.

Regulatory standards: the CNMV Good Governance Code for Listed Companies (updated 2020) applies on a comply-or-explain basis to companies with shares admitted to trading on Spanish regulated markets. Its 64 recommendations cover board independence, committee structure, director remuneration, transparency, and the integration of ESG factors into board oversight. The Code is becoming the de facto standard for unlisted companies seeking institutional investment or preparing for a capital transaction.

EU regulatory overlay: Regulation (EU) 2017/828 (Shareholder Rights II), transposed into Spanish law by Law 5/2021, introduces specific requirements for listed companies regarding the approval of related-party transactions, director remuneration policy approval by the general meeting, and shareholder identification and engagement. For companies subject to the CSRD (Corporate Sustainability Reporting Directive), governance disclosure under ESRS G1 (Business Conduct) creates a further layer of public reporting obligations on corporate governance practices.

Sectors Most Affected by Corporate Governance Requirements

Financial services (banks, investment firms, insurance companies): supervised by the Banco de España, CNMV, or DGSFP respectively, financial institutions face the most demanding governance requirements: fit-and-proper assessments for board members, mandatory risk and audit committees, remuneration policies subject to regulatory review, and specific reporting obligations to supervisory authorities. Governance failures in financial institutions attract both regulatory sanction and personal director liability.

Listed companies and pre-IPO companies: companies preparing for a stock market listing must implement CNMV Good Governance Code standards well before the admission to trading process begins. Institutional investors participating in IPOs conduct detailed governance due diligence, and governance deficiencies identified at the IPO stage can result in significant price reductions or failed book-building.

Private equity-backed companies: PE funds require governance reforms as a condition of investment: formal boards with independent members, audit committees, management reporting frameworks, and — in secondary transactions — governance warranties from the sellers. PE investors routinely use the governance framework to manage and monitor their portfolio investments throughout the holding period.

Family businesses (second-generation transitions): the most frequent trigger for corporate governance advisory in Spanish SMEs is the transition to the second generation. The combination of multiple heirs, divergent levels of involvement in the business, and the absence of pre-existing rules for decision-making and ownership transfers creates governance crises that require immediate intervention.

Worked Example: Corporate Governance Redesign for a Private Equity Entry

A family-owned manufacturing company (95 employees, EUR 22 million revenue) received a capital investment from a Spanish private equity fund that took a 40% minority stake. As a condition of the investment, the fund required: a board of directors with five members (two fund nominees, two family shareholders, one independent director), an audit committee chaired by the independent director, a formal director remuneration policy approved by the shareholders’ meeting, and a quarterly management reporting pack with defined KPIs.

BMC managed the governance redesign:

• Drafted the new articles of association to reflect the board structure, committee mandates, and shareholder voting rights agreed in the investment agreement.
• Prepared the board of directors regulations covering meeting procedures, quorums, committee terms of reference, and conflict-of-interest management.
• Led the selection process for the independent director, including competency profiling, candidate sourcing, and onboarding documentation.
• Designed the director remuneration policy structure (fixed, short-term variable, and long-term incentive plan aligned with fund exit horizon).
• Implemented the quarterly management reporting framework, coordinating with the company’s CFO and the fund’s portfolio management team.

Timeline from term sheet to first board meeting under the new governance structure: 11 weeks.

Common Mistakes We Fix

1. Allowing governance instruments to diverge from operational reality. A board regulations document that is signed and filed but never followed does not provide governance. Courts assessing director liability, investors conducting due diligence, and regulators evaluating compliance all look for evidence that the governance instruments are actually applied — not just that they exist. Governance must be lived, not just documented.

2. Using template articles of association without customisation. Generic articles of association designed for the most basic structure create problems when the company’s complexity outgrows them — particularly around share transfer restrictions, reserved matter decisions, and director appointment procedures. Customised articles that reflect the actual shareholder structure and decision-making requirements prevent future disputes.

3. Not updating governance instruments after capital events. A capital round, a new shareholder, or a management buyout changes the governance dynamics of the company. Articles, board regulations, and shareholders’ agreements that reflect the pre-event structure become immediately inconsistent with the post-event reality. The governance update should be part of the closing checklist for every capital transaction.

4. Failing to create a clear separation between shareholder and management roles. Family business founders who are simultaneously the majority shareholder and the sole executive director frequently blur the distinction between ownership decisions (approving accounts, dividend policy, major transactions) and management decisions (operational expenditure, staffing, day-to-day contracts). This blurring becomes a significant governance deficiency when the company grows, external investors enter, or disputes arise between shareholders.

5. Treating independent directors as a formality rather than a resource. Independent directors chosen for name recognition rather than functional competence, who attend quarterly board meetings without substantive engagement, add no governance value and create potential liability exposure for the company if governance failures occur under their watch. The value of an independent director is in the quality of the challenge and advice they bring — which requires a structured selection process and a well-designed board process.

Geographic Coverage

We advise companies on corporate governance across Spain from offices in Madrid, Barcelona, Málaga, and Marbella. For international corporate groups with Spanish subsidiaries, we advise on the governance of the Spanish entity in the context of the group’s global governance framework, ensuring compliance with Spanish LSC requirements whilst maintaining coherence with group-level governance standards. We have experience advising companies with governance requirements across multiple EU jurisdictions simultaneously.

ESG Integration into Corporate Governance

Environmental, Social, and Governance (ESG) criteria are increasingly embedded in corporate governance frameworks — driven by CSRD reporting obligations, lender ESG covenants in syndicated finance, and investor ESG assessment requirements. The governance pillar (G) of ESG is no longer an aspirational framework: for companies subject to CSRD (those with more than 250 employees and meeting balance sheet or revenue thresholds, from 2025 reporting year), it is a mandatory public disclosure requirement under ESRS G1.

ESRS G1 requires disclosure of:

• The company’s governance structure, including the composition and diversity of the board of directors.
• Board-level oversight processes for material sustainability matters.
• Anti-corruption and anti-bribery policies and the mechanisms for managing related risks.
• Lobbying activities and political contributions.
• Payment practices, particularly payment terms with small and medium-sized suppliers.

We integrate CSRD governance disclosure requirements into the corporate governance programme from the outset, ensuring that the governance structures built for operational purposes also generate the disclosure data required for the annual sustainability report. Companies that build governance for CSRD purposes but not for operational coherence — or vice versa — end up with two parallel governance systems that create confusion and duplication.

Governance Preparation for Mergers, Acquisitions, and Corporate Transactions

Corporate transactions — whether a sale of the company, a capital increase, a joint venture, or a merger — place intense scrutiny on corporate governance. Acquirers, investors, and transaction counsel conduct detailed governance due diligence: reviewing the articles of association, board minutes from the past three to five years, shareholders’ agreements, related-party transaction records, and director remuneration structures.

The most common governance findings in M&A due diligence that affect price or conditions:

• Board minutes that do not document the deliberation process for major decisions (making the business judgment rule defence unavailable for those decisions post-closing).
• Related-party transactions that were not approved by a disinterested majority of the board or shareholders’ meeting as required by Art. 229 LSC.
• Articles of association that do not accurately reflect the current shareholding structure or decision-making arrangements (creating a gap between the de facto and de jure governance of the company).
• Dividend payments made without the proper general meeting approval procedure under Art. 273 LSC.
• Directors whose appointment terms have expired without renewal, creating governance acts of questionable validity.

We conduct pre-transaction governance due diligence on behalf of sellers — identifying and remediating governance findings before the buyer’s advisers discover them — and on behalf of buyers, as part of the pre-signing diligence process. Early identification of governance deficiencies gives the parties the opportunity to remedy them, reducing the risk of price chips or warranty claims post-closing.

How We Work

Our corporate governance practice combines corporate lawyers with experienced company secretarial support, providing both the legal instrument design and the practical governance administration. A typical engagement follows three phases:

Phase 1 — Diagnostic (2-4 weeks): governance gap assessment, review of articles of association and existing instruments, board effectiveness review, identification of immediate compliance risks (expired director mandates, unfiled accounts, missing board documentation).

Phase 2 — Instrument design and drafting (4-8 weeks): articles of association update, board regulations, shareholders’ agreement (if required), family protocol (for family businesses), director remuneration policy, and code of ethics and conduct.

Phase 3 — Implementation and maintenance: board onboarding for new directors, annual board effectiveness review, corporate obligation calendar management, and governance instrument updates following corporate events (capital rounds, ownership changes, regulatory changes).

Our annual governance maintenance programme is available on a subscription basis for companies that want ongoing governance administration support without the cost of a full-time company secretary.