The 2018 Companies and other Commercial Institutions Bill, passed at the end of October, reforms the earlier 1951 law, bringing it into line with latest international corporate governance standards.

As well as regulating many matters affecting companies (how they are incorporated, mergers, acquisitions, liquidation, etc) the law contains other new elements on good governance, which we analyze below:

Members of the Board of Directors

This contains several clauses about corporate administration and management and, specifically, the obligation that at least one company director should be resident in the country. It also specifies that:

• Private institutions with between 1 and 10 shareholders should have at least 2 directors, and those with more than 10 shareholders must have at least 3 directors on their board
• Public institutions must have between 7 and 15 directors on their board

To be consistent with corporate governance best practice, the law stipulates that a director who is also the Managing Director or CEO of the company may not chair the board.

It sets out in detail the responsibilities of the board of directors as a collegiate body, and specifically directors' obligations to display independent judgment when taking decisions and to act in good faith, in the best interests of the company and of its stakeholders. Likewise, it regulates the functions, vetting requirements and responsibilities of the individual acting as the board secretary; under all circumstances this person must be resident in the country.

As to board members of public companies, the Bill dictates that they may serve on a maximum of six boards of companies unrelated to one another at any moment, a condition aimed at making sure they have enough time to discharge their duties effectively.

The law pays particular attention to due diligence and directors’ loyalty, specifically, to their obligation to manage conflicts of interest that may arise in the performance of their duties.

Directors' pay

The Bill stipulates that directors' pay should be made known and submitted to the General Shareholders' Meeting for its information and approval.

It prohibits the granting of loans or collateral to board directors from company funds unless these are under arm’s-length market conditions, and adds that any such collateral guarantees should be subject to rules that enable directors' personal financial interests to be kept separate from the company in which they have a position.

Provisions for public institutions

In addition to the above, the Bill contains specific provisions for public institutions, such as:

• The obligation to have an audit committee consisting of at least 3 members, all of them independent.
• The requirement to implement corporate governance policies on important matters such as the independent criteria of directors, their responsibilities, managing conflicts of interest, directors' pay policy, succession planning for board members, and any others considered necessary for the smooth and successful running of the company's activity.
• The duty to have at least 3 non-executive or independent directors on their board of directors.

Online Register

Finally, in order to make the real ownership of companies more transparent, the Bill provides for the creation of an Online Register to keep a record of domestic and foreign companies and private commercial corporations. This Register must be kept permanently up to date.