PUERTO RICO Law and Practice Contributed by: Fernando J. Rovira-Rullán and Andrés I. Ferriol-Alonso, Ferraiuoli LLC
1.3 Companies With Publicly Traded Shares Puerto Rican publicly traded companies registered with the Securities and Exchange Commission are subject to regulations promulgated under the Secu - rities Act of 1933 and the Securities Exchange Act of 1934, and to such other rules and corporate gov - ernance requirements imposed by the exchanges in which their securities are traded. 1.4 Stock Exchange Requirements Developments See 1.3 Companies With Publicly Traded Shares . As a general rule, corporations are managed by or under the direction of a board of directors. This not - withstanding, the certificate of incorporation for cer - tain types of corporations (eg, close corporations and non-profit corporations) could establish a differ - ent management structure, in which case the person or group of persons designated in the certificate of incorporation would assume all of the powers and responsibilities traditionally granted to the board of directors. Furthermore, the certificate of incorpora - tion may grant to the board of directors the power to execute management agreements – provided, how - ever, that the terms of such management agreement may not exceed three years. It is important to note that the board of directors of a corporation generally does not engage in or manage the daily operations of the corporation; instead, such responsibilities are delegated by the board of directors to the officers that it appoints. 2. Corporate Management 2.1 Principal Bodies or Functions Contrary to a corporation, an LLC is member-man - aged by default; however, the limited liability company agreement may provide for a centralised management structure similar to that of a corporation (ie, a board of managers and officers). As the name implies, in a member-managed LLC the members are responsible for the day-to-day operations of the company. In cer - tain instances, the members may decide to appoint a manager, who does not have to be a member, to oversee the day-to-day operations of the company.
As previously mentioned, Delaware case law is highly persuasive in Puerto Rico. Although the Puerto Rico Supreme Court has yet to express itself on the follow - ing matter, it is important to note that the Delaware Chancery Court has stated in Obied v Hogan , WL 3356851 (2016) that the choice of management struc - ture chosen by the members shall have consequences when drawing case law as an analogy in order to solve a controversy. For example: • if the members adopted a board of managers structure, corporate law may be applied by a court of law; or • if the members adopted a member-managed struc - ture, general partnership law may be applied by analogy in deciding the particular controversy. 2.2 Types of Decisions Except for extraordinary transactions which are sub - ject to shareholder approval, the board of directors of a Puerto Rican corporation is responsible for making key decisions and providing strategic direction to the corporation. Some of the major decisions made by the board of directors include the following: • appointment of officers – the board appoints the Chief Executive Officer (CEO) and/or President, the secretary and any other officers of the corporation, and evaluates their performance regularly; • financial oversight – the board reviews and approves the company’s financial statements, budgets and major financial transactions; • stock-related decisions – the board makes deci - sions related to dividends, stock issuances or repurchases; • extraordinary transactions – the board evaluates and approves extraordinary transactions (such as potential mergers, acquisitions or divestitures, sale of substantially all or all of the corporate assets, or the dissolution or liquidation of the corpora - tion) and recommends any such transaction to the shareholders of the corporation for their considera - tion and approval; and • legal and regulatory compliance – the board ensures compliance with applicable laws, regula - tions and corporate governance.
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