In Compliance #3 , we discussed the need to approve financial statements and other reporting obligations of companies, as well as their deadlines for the current year. Often, when convening an Annual General Meeting or Annual Shareholders' Meeting, we raise with clients issues related to the expiration of the mandates of members of their governing bodies. Determining the period for which management board members of companies serve is crucial to their operations. Resolving this issue generates controversy every year and raises significant practical issues. Therefore, in this article, we will discuss the concept of the mandate and term of office of management board members of companies.
Term of office
A term of office refers to the period of service of a management board member, i.e., the time during which a person exercises the rights arising from their position . A management board member is appointed for a fixed term, with a term of office not exceeding five years. The regulations allow for the reappointment of a management board member for another term, with the reappointment occurring no earlier than one year before the end of the current term. The term of office is most often defined in years, unless the company agreement or bylaws provide otherwise.
Mandate
A mandate means the authority to perform a given function . In other words, a management board member has the authority to exercise the rights and obligations arising from their position until their mandate expires. A mandate is granted to a management board member upon appointment to the company's management board.
Practical problems
While the commencement of a term of office is unambiguous, the issues surrounding its expiration require detailed discussion. As indicated above, the authority to serve as a management board member begins upon appointment. The issue of terminating a term of office is somewhat more complex and depends on the manner of its expiration . The Code lists events that terminate a management board member's term of office. These include death, resignation, dismissal from the management board, or the commencement of company liquidation (this is not an exhaustive list). In such a case, the management board member's term of office expires upon the end of the term of office. If none of the reasons for the "early" termination of the term of office, and consequently the expiration of the term of office, have occurred, the management board member's term of office expires no later than the date of the shareholders' meeting or the general meeting approving the financial statements for the last full financial year of service as a management board member. Considering the above, it can be concluded that a term of office may exceed the term of office. This is indeed the case.
Example:
The Management Board member was appointed for a three-year term on January 1, 2022. His term expires no later than June 30, 2025, i.e., on the date of the meeting approving the company's financial statements (assuming the financial year coincides with the calendar year).
Joint term of office
In a situation where the management board consists of more than one member, an important issue is determining whether members of this body will be appointed for an individual or joint term. The principle is an individual term – each management board member is appointed independently for the duration of their term. Individual terms may expire at different times. The situation is quite different with a joint term. The duration of the authority to serve as a management board member is the same for each management board member. This means that the terms of office of all management board members expire simultaneously – regardless of the commencement date of their term. Adopting a joint term of office model for members results in the simultaneous expiration of the mandates of all management board members. If the company agreement or bylaws provide that management board members are appointed for a joint term, the mandate of a management board member appointed before the end of the management board term expires simultaneously with the expiration of the mandates of the remaining management board members, unless the company bylaws provide otherwise .
The Code's regulations cause numerous problems and discrepancies, both in legal opinions and in practical application. It should be remembered that the company's articles of association or articles of association may contain different regulations regarding the term of office and mandate, for example, excluding the rule that the term of office expires on the date of the general meeting approving the financial statements. To avoid doubt, it is worth ensuring a precise and comprehensive regulation of the term of office of management board members in capital companies.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of July 5, 2022
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