PUERTO RICO Law and Practice Contributed by: Fernando J Rovira-Rullán and Andrés I Ferriol-Alonso, Ferraiuoli LLC
harmed the corporation or its stakeholders, the court may order the rescission or undo - ing of the transaction or the restoration of the corporation to its prior condition. • Removal or disqualification – in extreme cases of breach of fiduciary duties, the court may even order the removal of directors or officers from their positions. 4.9 Other Bases for Claims/Enforcement Against Directors/Officers See 4.6 Legal Duties of Directors/Officers . Breaches of the limited liability company agree - ment by a member or manager may also be enforced against them. 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers The Corporations Act does not impose any limi - tations on the compensation of directors. Unless otherwise specified in the certificate of incorpo - ration or the by-laws, the board of directors has the authority to determine the compensation to be paid to the officers and directors of the cor - poration. The Corporations Act does not spe - cifically address this matter in connection with LLCs. 4.11 Disclosure of Payments to Directors/Officers See 4.10 Approvals and Restrictions Concern- ing Payments to Directors/Officers . 5. Shareholders 5.1 Relationship Between Companies and Shareholders Except for certain extraordinary matters (such as a merger or consolidation, conversion, the sale of all or substantially all of the assets, or dissolu-
tion) for which shareholder approval is required, generally shareholders do not have corporate governance responsibilities in corporations. Notwithstanding the foregoing, in situations where a majority shareholder has a conflict of interest with respect to a corporate matter, the Corporations Act imposes upon the control - ling shareholder a duty of loyalty. In the case of LLCs, the Corporations Act establishes that members are bound by the same duty of loyalty to the LLC and to the other members as estab- lished for directors, officers and shareholders of a corporation. For LLCs, the Corporations Act allows for different responsibilities to be agreed upon in the limited liability company agreement. 5.2 Role of Shareholders in Company Management One of the basics tenets of corporate law under the Corporations Act is that the business of a corporation shall be managed by or under the direction of a board of directors. Thus, share - holders are generally not involved in the direct management of the corporation. The principal exception to this occurs in the context of close corporations, in which the shareholders may be primarily responsible for the operation and management of the entities, if such governance structure is so provided for in the articles of incorporation. Nonetheless, shareholders have the right and the power to elect the board of directors, as well as the right to vote on and approve extraordinary transactions, such as: • any amendment to the certificate of incorpo - ration or the by-laws; • a merger, consolidation or conversion; • the sale of all or a substantial amount of the assets of the corporation; or
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