If the CEO is paid, legal requirements must be met.
When in joint stock companies or limited liability companies the administrative body – which represents and manages the company – is organised through a Board of Directors, decisions are taken jointly at Board meetings, but it is common for their execution to be delegated to a managing director – who carries out the day-to-day management of the company by executing the decisions of the Board – and it is sometimes agreed that he/she will be paid for his/her services.
If there is a managing director, a contract must be signed with him/her that meets the following requirements:
It must be approved by the Board by 2/3 of its members (the CEO cannot attend or vote at this meeting).
It must indicate all the items for which the CEO will be paid for carrying out the executive functions indicated above. It should also include any severance payments agreed in the event of the chief executive officer’s removal, or the amounts to be paid by the company for insurance premiums or contributions to savings schemes.
In addition to the above, if the chief executive officer is paid for performing his executive duties, the articles of association need to establish that the position is remunerated and determine the remuneration system. The shareholders’ meeting must also approve the maximum amount of annual remuneration for all directors (including that of the CEO).
It is important to bear in mind that, if these requirements are not met, there is a risk that the CEO may be required to repay the amounts received (for example, by a shareholder who claims that the Board of Directors has acted improperly) or, even if he/she is not required to repay, the tax authorities may consider that the amounts received are not a deductible expense for the company.
Our advisors will inform you on how to organise the remuneration system for the CEO, what requirements must be met and how to draw up the contract governing the relationship between the CEO and the company.