PUERTO RICO Law and Practice Contributed by: Fernando J Rovira-Rullán and Andrés I Ferriol-Alonso, Ferraiuoli LLC
3. Management of the Company 3.1 Bodies or Functions Involved in Governance and Management As a general rule, corporations are managed by or under the direction of a board of directors. This notwithstanding, the certificate of incorpo - ration for certain types of corporations (eg, close corporations and non-profit corporations) could establish a different management structure, in which case the person or group of persons des - ignated in the certificate of incorporation would assume all of the powers and responsibilities traditionally granted to the board of directors. Furthermore, the certificate of incorporation may grant to the board of directors the power to exe - cute management agreements – provided, how - ever, that the terms of such management agree - ment may not exceed three years. It is important to note that the board of directors of a corpo - ration 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. Contrary to a corporation, an LLC is member- managed by default; however, the limited liabil - ity company agreement may provide for a cen - tralised 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 certain 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 mentioned in 1.2 Sources of Corporate Gov- ernance Requirements , Delaware case law is highly persuasive in Puerto Rico. Although the Puerto Rico Supreme Court has yet to express
itself on the following 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 structure 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 structure, general partnership law may be applied by analogy in deciding the particular controversy. 3.2 Decisions Made by Particular Bodies The board of directors of a Puerto Rican corpo - ration is responsible for making key decisions and providing strategic direction to the corpora - tion. 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 perfor - mance regularly; • financial oversight – the board reviews and approves the company’s financial statements, budgets and major financial transactions; • stock-related decisions – the board makes decisions related to dividends, stock issu - ances or repurchases; • extraordinary transactions – the board evalu - ates 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 liq - uidation of the corporation) and recommends any such transaction to the shareholders of
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