The Corporate

Governance
Appendix 1

about the authors

Review

ADAM O EMMERICH Fourth Edition

Wachtell, Lipton, Rosen & Katz
Adam O Emmerich practises in the Editorcorporate department of Wachtell, Lipton, Rosen
& Katz, focusing primarily on mergers and acquisitions, securities law matters, and
corporate governance. HisWillem
practice hasJincluded
L Calkoen
a  broad and varied representation of
public and private corporations and other entities in a variety of industries throughout
the United States and abroad in connection with mergers and acquisitions, divestitures,
spin-offs, joint ventures and financing transactions. He also has extensive experience in
takeover defence. Mr Emmerich is recognised as one of 500 leading lawyers in America by
Lawdragon; as one of the world’s leading lawyers in the field of mergers and acquisitions
in the Chambers Global guide to the world’s leading lawyers; as an expert in each of
M&A, corporate governance and M&A in the real estate field by Who’s Who Legal; and
as an expert in M&A and in corporate governance by Euromoney Institutional Investor’s
Guides to the world’s leading mergers and acquisitions and corporate governance lawyers.

WILLIAM SAVITT
Wachtell, Lipton, Rosen & Katz
William Savitt is a  partner in the litigation department of Wachtell, Lipton, Rosen
& Katz. He focuses on representing corporations and directors in litigation involving
mergers and acquisitions, proxy contests, corporate governance disputes, class actions
involving allegations of breach of fiduciary duty, and regulatory enforcement actions
relating to corporate transactions. Mr Savitt writes and speaks extensively on corporate
and securities law topics and has developed and teaches a course at Columbia Law School
on transactional litigation.
Law Business Research

415
 The Corporate
Governance Review

Reproduced with permission from Law Business Research Ltd.

This article was first published in The Corporate Governance Review, 4th edition
(published in March 2014 – editor Willem J L Calkoen).

For further information please email

nick.barette@lbresearch.com
The Corporate
Governance
Review

Fourth Edition

Editor
Willem J L Calkoen

Law Business Research Ltd

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 acknowledgements

The publisher acknowledges and thanks the following law firms for their learned
assistance throughout the preparation of this book:

A&L GOODBODY

Bahar & Partners

BÄR & KARRER AG

BREDIN PRAT

Carrillo y Asociados

The Delaware Counsel Group LLP

GILBERT + TOBIN

Graf Patsch Taucher Rechtsanwälte

Hannes Snellman Attorneys Ltd

HENGELER MUELLER PARTNERSCHAFT VON RECHTSANWÄLTEN

Hergüner Bilgen Özeke Attorney Partnership

J Sagar Associates

Lee and Li Attorneys-at-Law

MANNHEIMER SWARTLING ADVOKATBYRÅ

NautaDutilh

NISHIMURA & ASAHI

OSLER, HOSKIN & HARCOURT LLP

Plesner Law Firm

i
 Acknowledgements

SLAUGHTER AND MAY

Stephenson Harwood

Studio Legale Pavesi Gitti Verzoni

Tsibanoulis & Partners

Ţuca Zbârcea & Asociaţii

Uría Menéndez

WACHTELL, LIPTON, ROSEN & KATZ

ii
 contents

Editor’s Preface ��������������������������������������������������������������������������������������������������vii

Willem J L Calkoen

Chapter 1 Australia�������������������������������������������������������������������������������1
John Williamson-Noble and Tim Gordon

Chapter 2 Austria���������������������������������������������������������������������������������13
Wolfgang Thomas Graf

Chapter 3 Belgium��������������������������������������������������������������������������������24
Elke Janssens and Virginie Ciers

Chapter 4 Canada���������������������������������������������������������������������������������49
Andrew MacDougall, Robert Yalden and Elizabeth Walker

Chapter 5 Denmark������������������������������������������������������������������������������62
Jacob Christensen, Søren Toft Bjerreskov
and Nicholas William Boe Stenderup

Chapter 6 Finland��������������������������������������������������������������������������������75
Klaus Ilmonen, Micaela Thorström, Antti Kuha
and Anniina Järvinen

Chapter 7 France����������������������������������������������������������������������������������87
Didier Martin

Chapter 8 Germany����������������������������������������������������������������������������102
Carsten van de Sande

Chapter 9 Greece��������������������������������������������������������������������������������118
Evy C Kyttari and Sofia Kizantidi

iii
 Contents

Chapter 10 Guatemala������������������������������������������������������������������������129
Rodolfo Alegría and Christian Michelangeli 

Chapter 11 Hong Kong����������������������������������������������������������������������139

Lai Voon Keat, Victor Lee and Fiona Cheng

Chapter 12 India������������������������������������������������������������������������������������161
Murali Ananthasivan and Lalit Kumar

Chapter 13 indonesia��������������������������������������������������������������������������172
Wahyuni Bahar and Melanie Hadeli

Chapter 14 Ireland������������������������������������������������������������������������������185
Paul White

Chapter 15 Italy�������������������������������������������������������������������������������������200
Gregorio Gitti, Diego Riva, Camilla Ferrari and Luca Bernini 

Chapter 16 Japan������������������������������������������������������������������������������������214
Mitsuhiro Harada and Tatsuya Nakayama

Chapter 17 Luxembourg��������������������������������������������������������������������227
Margaretha Wilkenhuysen and Louisa Silcox

Chapter 18 Netherlands������������������������������������������������������������������248
Geert Raaijmakers and Marlies Stek

Chapter 19 Portugal���������������������������������������������������������������������������273
Francisco Brito e Abreu and Joana Torres Ereio

Chapter 20 Romania�����������������������������������������������������������������������������291
Cristian Radu

Chapter 21 Spain�������������������������������������������������������������������������������������307
Carlos Paredes and Rafael Núñez-Lagos

iv
 Contents

Chapter 22 Sweden�������������������������������������������������������������������������������319
Hans Petersson and Emma Kratz

Chapter 23 Switzerland�������������������������������������������������������������������334
Rolf Watter and Katja Roth Pellanda

Chapter 24 Taiwan��������������������������������������������������������������������������������351
Stephen C Wu, Benjamin Y Li and Derrick C Yang

Chapter 25 Turkey��������������������������������������������������������������������������������363
Ümit Hergüner and Zeynep Ahu Sazci

Chapter 26 united Kingdom�����������������������������������������������������������376

Andy Ryde and Murray Cox

Chapter 27 United States�����������������������������������������������������������������389

Adam O Emmerich, William Savitt, Sabastian V Niles
and S Iliana Ongun

Chapter 28 United States: Delaware������������������������������������������403

Ellisa O Habbart and Lisa R Stark

Appendix 1 About the Authors�����������������������������������������������������415

Appendix 2 Contributing Law Firms’ Contact Details���435

v
 EDITOR’S PREFACE

I am proud to present this new edition of The Corporate Governance Review to you.
In this fourth edition, we can see that corporate governance is becoming a more vital
and all-encompassing topic with each year. We all realise that the modern corporation is
one of the most ingenious concepts ever devised. Our lives are dominated by corporations.
We eat and breathe through them, we travel with them, we are entertained by them, most
of us work there. Most corporations aim to add value to society and they very often do.
Some, however, are exploiting, polluting, poisoning and impoverishing us. A lot depends
on the commitment, direction and aims of a corporation’s founders, shareholders, boards
and vital staff members. Do they show commitment to all stakeholders or to long-term
shareholders only, or mainly to short-term shareholders? There are many variations of
structure of corporations and boards within each country and between countries. All
will agree that much depends on the personalities and commitment of the persons of
influence in the corporation.
We see that everyone wants to be involved in ‘better corporate governance’:
parliaments, governments, the European Commission, the SEC, the OECD, the UN’s
Ruggie reports, the media, supervising national banks, shareholder activists and other
stakeholders. The business world is getting more complex and overregulated, and there
are more black swans, while good strategies can quite quickly become outdated. Most
directors are working diligently, many with even more diligence. Nevertheless, there have
been failures in some sectors, so trust has to be regained. How can directors do all their
increasingly complex work and communicate with all the parties mentioned above?
What should executive directors know? What should outside directors know?
What systems should they set up for better enterprise risk management? How can chairs
create a  balance against imperial CEOs? Can lead or senior directors create sufficient
balance? Should most outside directors understand the business? How much time should
they spend on the function? How independent must they be? What about diversity?
Should their pay be lower? What are the stewardship responsibilities of shareholders?

vii
 Editor’s Preface

Governments, the European Commission and the SEC are all pressing for more
formal inflexible legislative acts, especially in the area of remuneration. Acts set minimum
standards, while codes of best practice set aspirational standards.
More international investors, voting advisory associations and shareholder
activists want to be involved in dialogue with boards about strategy, succession and
income. Indeed, wise boards have ‘selected engagements’ with stewardship shareholders
to create trust. What more can they do to show all stakeholders that they are improving
their enterprises other than through setting a better ‘tone from the top’? Should they put
big signs on the buildings emphasising integrity, stewardship and respect?
Interest in corporate governance has been increasing since 1992, when
shareholder activists forced out the CEO at General Motors and the first corporate
governance code – the Cadbury Code – was written. The OECD produced a  model
code and many countries produced national versions along the lines of the Cadbury
‘comply or explain’ model. This has generally led to more transparency, accountability,
fairness and responsibility. However, there have been instances where CEOs gradually
amassed too much power or companies have not developed new strategies and have
fallen into bad results – and sometimes even failure. More are failing in the financial
crisis than in other times, hence the increased outside interest in legislation, further
supervision and new corporate governance codes for boards, and stewardship codes for
shareholders and shareholder activists.
This all implies that executive and non-executive directors should work
harder and more as a team on policy, strategy and entrepreneurship. It remains a fact
that more money is lost through lax directorship than through mistakes. On the other
hand, corporate risk management is an essential part of directors’ responsibilities, and
sets the tone from the top.
Each country has its own measures; however, the chapters of this book show
a  convergence. The concept underlying the book is of a  one-volume text containing
a series of reasonably short, but sufficiently detailed, jurisdictional overviews that permit
convenient comparisons, where a  quick ‘first look’ at key issues would be helpful to
general counsel and their clients.
My aim as editor has been to achieve a high quality of content so that The Corporate
Governance Review will be seen, in time, as an essential reference work in our field.
To meet the all-important content quality objective, it was a condition sine qua
non to attract as contributors colleagues who are among the recognised leaders in the
field of corporate governance law from each jurisdiction.
I thank all the contributors who helped with this project. I hope that this book
will give the reader food for thought; you always learn about your own law by reading
about the laws of others.
Further editions of this work will obviously benefit from the thoughts and
suggestions of our readers. We will be extremely grateful to receive comments and
proposals on how we might improve the next edition.

Willem J L Calkoen
NautaDutilh
Rotterdam
March 2014

viii
 Chapter 10

GUATEMALA
Rodolfo Alegría and Christian Michelangeli 1

I OVERVIEW OF GOVERNANCE REGIME

The sources of law concerning corporate governance of listed companies in Guatemala are
the Constitution, company articles of incorporation, trade, financial and civil statutes,
the principles of disclosed truth and good faith. Best practices guidelines for corporate
government are non-existent in Guatemala; however, statutes provide basic guidelines
concerning conflicts of interest and the responsibilities and duties of directors.
The listed companies regime is enforced by the Commercial Registrar, which
mainly oversees company compliance in legal and regulatory matters concerning
business structure, incorporation, corporate bodies’ designation, directors’ and officers’
appointments, supervisory board appointments, mergers and voluntary wind-ups.
In the case of financial services companies, the Superintendency of Banks and
the Securities and Commodities Market Registrar also function as enforcement bodies
overseeing compliance of legal and regulatory standards concerning licensing, financial
operations and activities, capital adequacy and solvency.
The National Stock Exchange operates as a de facto enforcement body with regard
to the information disclosure of listed companies.
In Guatemala, by statutory disposition, corporate government is in charge of the
direction of the business and the appropriate management of the company. The bodies
that comprise corporate government are direction, management and auditing. In force
since 1970, the applicable statute has seen no amendment with regard to the nature of
the corporate governance regime.
A particularity of the Guatemalan corporate governance regime, in terms of
international regulatory standards, is that the law omits regulation concerning fiduciary

1 Rodolfo Alegría is a partner and Christian Michelangeli is an associate at Carrillo y Asociados.

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 Guatemala

duties of directors, officers and auditors owed to the shareholders and, for example, to
creditors if the company were to approach insolvency.
Since August 2013, following the mandatory share conversion from bearer to
nominative shares instated by the Forfeiture Law, corporate governance has been dealing
with the suspension of shareholders’ rights in companies that were not compliant with
the mandatory conversion.

II CORPORATE LEADERSHIP

i Board structure and practices

Articles 162 and 184 of the Commercial Code contemplate the possibility of designation
of a two-tier corporate governance regime comprising the board of directors or a sole
administrator, and the supervisory board, if so decided by the shareholders.
Even though the law contemplates a  two-tier corporate governance regime,
in practice the convention in listed companies is for single-tier corporate governance
through either a board of directors or a sole administrator.
Legally contemplated in Articles 44 and 47 of the Commercial Code, a common
practice in large listed companies is the utilisation of a  third tier in the corporate
governance regime, comprising one or more executive officers legally defined as managers.
Pursuant to Article 162 of the Commercial Code, when the board of directors
system of direction is chosen over the sole administrator, the shareholders decide the
number of directors to be appointed, as well as their respective positions on the board.
Moreover Article 169 of the Commercial Code establishes that a  company’s articles
of incorporation may contemplate the appointment of substitute directors. With the
exception that the shareholders appoint directors for a shorter term, Article 162 of the
Commercial Code further establishes that directors’ appointments have a  three-year
term, at the end of which the directors will remain in position as long as the replacement
directors have not been appointed or have not effectively occupied their position as such.
According to Article 164 of the Commercial Code the board of directors will have
the legal representation of the company, which implies that all directors will represent
the company unless otherwise stated in the articles of incorporation, in which case the
articles of incorporation should provide the framework concerning the authorisation of
directors to perform acts on the company’s behalf.
As established in Article 163 of the Commercial Code, the articles of incorporation
shall establish the responsibilities of the directors. However the Commercial Code
provides a range of responsibilities concerning directors as follows:
a Article 47 establishes that among the Board’s responsibilities are:
• the representation of the company before the judiciary; and
• the execution of acts and contracts related to the company’s commercial purposes;
b Article 55 establishes that the board has the responsibility to brief the shareholders,
at least yearly, of the activities of the board and the financial situation of
the company; and
c Article 162 establishes that the board will be responsible for the direction of the
company’s business.

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 Guatemala

The chairman’s control over the board is established through the stipulation in
Article 167 of the Commercial Code that the chairman will have the decisive vote in
board meetings, unless the articles of incorporation state otherwise.
The chairman’s control over the company is exercised in two ways:
a through the chairman’s representation of the company’s executive body in all
matters and business, as stated by Article 166 of the Commercial Code; and
b through the chairman’s legal mandate to preside over the shareholders’ meetings,
according to Article 47 of the Commercial Code.

Unless otherwise stipulated by the articles of incorporation, pursuant to Article 48 of

the Commercial Code, or by unanimous consent of the shareholders pursuant to Article
166, Article 48 forbids the delegation of a director’s responsibilities to a fellow director or
to a substitute; nevertheless, the regulation indicates that if a director has enough powers,
the director may grant and revoke special powers of attorney.
Article 166 states that the board of directors may appoint one of its members as
a delegate to execute specific acts, as a special executor.
From a legal standpoint, as stated by Article 166 of the Commercial Code, the
chairman is considered as the representative of the executive body in all matters and
business of the corporation, and thus there is no separation of the board member and
executive officer roles and responsibilities.
However, even though CEO and chairman’s roles and responsibilities are not
separated by law, if contemplated in the articles of incorporation or so resolved by the
shareholders, and pursuant to Articles 181 and 182 of the Commercial Code, a general
manager with the most ample powers of representation and execution may be appointed
by either the shareholders or the board. The general manager will have additional
responsibilities as stated by the articles of incorporation or the shareholders.
The chairman of the board will preside over the shareholders’ meetings as well as
report to shareholders on the board’s activities at least yearly. Moreover, as part of the
company’s general administration the general manager’s report is also required by law to
be included in the report to the shareholders presented by the chairman of the board.
Communications between shareholders and directors or officers are not expressly
or specifically addressed by law thus, pursuant to Article 5 of the Constitution, which
contemplates freedom of action, shareholders may communicate with directors or
officers as they deem necessary.
Remuneration of directors and senior management is not regulated nor
limited in terms of the amount of wages or expenses payable to either a  director or
a senior management member.
The establishment and functioning of specific committees or other organisational
means of direction is subject to the stipulations in the articles of incorporation
or of the shareholders.

ii Directors
Outside directors are neither contemplated nor regulated by Guatemalan law; however,
the contemplation of the appointment of such directors is not forbidden by law.

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 Guatemala

Considering that Article 5 of the Guatemalan Constitution states that all that is
not expressly forbidden by law shall be legal and that Article 15 of the Commercial Code
prescribes that companies shall be regulated, first and foremost, according to their articles
of incorporation, the role and involvement of outside directors, as well as information
disclosure, on-site visits of subsidiaries and communications with lower management
will be specifically regulated by the company articles of incorporation.
Pursuant to Articles 15 and 163 of the Commercial Code, directors will have
the duties that the articles of incorporation state; nonetheless, as stated by Article 162
of the same legal body, directors have under their care the management and direction of
the company’s business.
If contemplated by the articles of incorporation or designated and appointed by
the shareholders, outside directors will have the same duties as inside directors unless
otherwise stated by the company’s articles of incorporation.
The Commercial Code contemplates two types of liability of directors, general
liability and specific liability, provided that the direct result of the actions of the directors
was to the financial detriment of the company, the shareholders or creditors.
With regard to the general liability of directors, Article 171 of the above-
mentioned law states that directors shall be liable for any actions attributed to them that
result in damage caused to the company, shareholders or creditors. The regulation also
contemplates that all directors shall be jointly liable for those actions.
Pursuant to Article 172 of the Commercial Code directors shall be jointly liable:
a for the payment and amount of the capital contribution of the shareholders;
b for the existence of net profits by the company and their distribution among
shareholders as dividends;
c for the accounting of the company, including when it is not carried out according
to law and the accounts are not true; and
d for the precise fulfilment of the agreements reached by the shareholders.

Article 50 of the Commercial Code provides for the possibility of one director, part of
a board, acting solely under his own liability when omission concerning a specific matter
may result in damage to the company.
As established by Article 52 of the same legal body, the board of directors will
have joint and unlimited liability for the damage that may be caused by the directors to
the company. The directors that vote against the actions that constitute damage against
the company shall be exempt from their liability to the company.
Pursuant to Article 45 of the Commercial Code, and unless the articles of
incorporation of the company state otherwise, directors will be appointed by means of
a shareholder resolution.
The appointment of directors is made through a  shareholder election in
a  cumulative voting system (CVS), as established by Article 115 of the Commercial
Code. Under the CVS, each shareholder with voting rights will have as many votes as
shares owned times the number of directors to be elected for appointment.
Under the above-mentioned provision, during the process of election, the
shareholder can cast all the votes in favour of one specific director, or distribute
the shareholder’s total amount of votes among the number of directors being
elected for appointment.

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 Guatemala

Under Article 169 of the Commercial Code, any director who has a  direct or
indirect interest in any operational aspect of the business of the company must disclose
it to the other directors, refrain from participation in the deliberation and resolution of
the matter and leave the meeting’s premises.
Moreover, pursuant to Article 170 of the same legal body any director standing to
gain personal benefit derived from matters not pertaining to the company’s business will
have the obligation of disclosing it to the board for the pertinent determinations; in the
case that the director fails to comply with the disclosure he or she will be held liable to
compensate the company in the amount of the personal benefit received and the director
will be removed from the board.
The involvement of outside directors with executives will be addressed by the
articles of incorporation, in the event that the designation and appointment of outside
directors is considered and their interaction with executives allowed.

III DISCLOSURE

Pursuant to Article 368.4 of the Commercial Code every company shall have an orderly
record of the financial statements of the company that shall comply with the generally
accepted accounting principles. As stated by Article 377 of the same legal body the
financial statements shall comprise the balance sheet, statement of income and any
auxiliary statements concerning the true financial situation of the company.
As established by Article 374 of the Commercial Code, the balance sheet and
the statement of income shall be produced from the beginning of the operations of the
company and at least yearly. Pursuant to Article 379 of the same legal body the balance
sheet will truthfully and reasonably reflect the financial situation of the company. As
required by Article 380 of the Commercial Code, all companies shall publish their
balance sheets in the official gazette as of the closing of their yearly operations.
Under Article 55 of the Commercial Code, directors shall be held accountable
for their activities as members of the board of directors, as well as for the financial
information of the company.
Pursuant to Article 188 of the Commercial Code, and additionally to attributions
set by the articles of incorporation and other legislation, the supervisory board,
if appointed, shall:
a inspect the management of the company and examine its balance sheet to confirm
its precision and veracity;
b verify that the company’s accounting is being carried out according to the generally
accepted accounting principles;
c perform audits on cash and securities held by the company;
d require directors to render reports on the development of the company’s
business operations;
e convene shareholder meetings when the causes for wind-up arise or when, according
to their opinion a certain matter requires the attention of the shareholders;
f submit to both the board’s and the shareholders’ consideration any matter they
consider necessary;

133
 Guatemala

g attend the board of directors’ meetings, without voting rights, whenever they
deem it necessary;
h attend the shareholders’ meetings, without voting rights, to render their report
and opinion on the financial statements and on initiatives that to their judgement
are suitable; and
i in general, supervise, look after and inspect, at any given time, the
company’s operations.

Even though the Commercial Code does not provide for specific regulation concerning
a member of the supervisory board’s independence, the code does address conflicts of
interest for supervisors in Article 193, which states that they shall refrain from action in
any case that represents direct or indirect personal gain, having the duty of disclosing the
matter to the shareholders.
Given the absence of a corporate governance code of best practice, the ‘comply or
explain’ model is not applicable in Guatemala.
Mandatory disclosure matters will generally be subject to any and all legal
provisions that state the obligatory nature of the disclosure; some of those mandatory
disclosures are presented in the form of information available to the shareholders prior
to a  shareholders’ meeting. As established by Article 38.1 of the Commercial Code
concerning the disclosure for examination of the company’s accounts and documents,
as well as the financial and economic policies of the company, the information shall be
made available to the shareholders at least 15 days prior to the scheduled date of the
shareholders’ meeting. Moreover under Article 24 of the Securities and Commodities
Market Law, and as required by Articles 1 through 4 of the National Securities Exchange’s
Information Disclosure and Update Rule for Issuing Entities, disclosure is also mandatory
for the company’s shares to maintain trading status. The information will be available to
current and potential shareholders, and, inter alia, it includes:
a yearly audited financial statements;
b quarterly statements of conditions of the first three quarters for each year
of operations since the point at which the company’s shares were issued for
public offering;
c financial indexes of the projections stated in the issuance prospectus;
d amendments or modifications to the company’s articles of incorporation or
company information;
e changes in the structure of the corporate group or control structure in the
issuing company concerning major shareholders, directors, executives and
outside advisers;
f changes in the appointment of external auditors;
g the creation, development, change or cancellation of business ventures, products
or services offered by the issuing company;
h the current rating of the securities subject to public offering; and
i yearly reports of the board of directors and the supervisory board.

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Shareholders tend to be elected and appointed to the board of directors and thus
one-on-one meetings are uncommon. Moreover, in large companies with numerous
shareholders, in which the directors are not shareholders, one-on-one meetings are more
likely; however, this practice is uncommon.

IV CORPORATE RESPONSIBILITY

Guatemalan companies are not required by law to appoint either a special risk officer or
committee, unless mandatory under the Regulation of the Law against Money or Other
Assets Laundering or the Anti-Money and Other Asset Laundering Law, in which case
the participation of the compliance officer will be mandatory and limited to anti-money
laundering compliance matters.
In terms of financial, currency and liquidity risk management, pursuant to the
exercise of their rights, each shareholder can appoint either an auditor or an inspector,
who can propose initiatives to the shareholders in terms of risk management.
Pursuant to Article 3 of the National Securities Exchange’s Information Disclosure
and Update Rules for Issuing Entities, the information provided will be public and under
no circumstances will be considered to be provided under a non-disclosure provision.
Under those terms and with regard to information that might post a reputational risk
to a  company, the board of the company shall disclose the administration’s plans to
address those issues.
As the chairman of the board is considered as the executive body of a company
and has the decisive vote in matters subject to the board’s consideration, the chairman’s
influence over the board and the board’s influence over executives and officers is
considerable, and as such it could be stated that tone from the top is normally emphasised
in Guatemalan companies.
Whistle-blowing activities are not regulated in Guatemala; however, they are
neither disallowed nor discouraged. Legislation has not been developed to champion
the practice; the only legal incentives for whistle-blowing concern criminal activities
from or within a company in that, if known by an officer, executive or employee and not
reported, the officer, executive or employee may be subject to criminal prosecution for
concealment or failing to notify the authorities.
Corporate social responsibility (CSR) practices have increased in Guatemala in
the past 10 years; CentraRSE,2a non-profit initiative by the organised private sector, seeks
to promote awareness and promote the adoption of CSR practices in the private sector.
Following Guatemala’s participation in the Dominican Republic–Central America Free
Trade Agreement (CAFTA-DR), CSR in respect of employees and the environment has
grown. However, Guatemala has been subject to allegations and legal actions for non-
compliance with CSR practices regarding employees pursuant to CAFTA-DR provisions.

2 http://centrarse.org/.

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V SHAREHOLDERS

i Shareholder rights and powers

Pursuant to Article 101 of the Commercial Code, each issued share of the company will
represent one vote. The provision contemplates the existence and issuance of preferential
shares with priority rights over dividends and post-wind-up capital returns, stating that
such preferential shares may have voting rights limited to the matters concerning changes
to the capital structure or changes in the by-laws.
As stated by Article 105.2 of the same legal body each share gives the owner the
right to vote at the shareholders’ meeting.
Article 116 of the Commercial Code contemplates the possibility of voting
agreements between shareholders for a maximum term of 10 years.
Shareholder influence can be exercised first and foremost by the election and
appointment of shareholders as directors, a  common case in Guatemala. However,
shareholders may also influence the board personally, through an appointed inspector or
auditor, directly or indirectly through supervision and inspection as stated by Articles 184
and 188 of the Commerce Code.
Moreover, if subject to a shareholder resolution, the board could be instructed to
execute a decision.
Shareholders will have decisive power over the board, inter alia, in the
following matters:
a financial statement approval;
b distribution of dividends;
c amendments or modifications to the articles of incorporation;
d increase or decrease in company capital;
e voluntary wind-up; and
f mergers.

Pursuant to Article 154 of the Commercial Code, resolutions adopted by the majority
of shareholders also bind dissenting ones; however, dissenting shareholders will have
contesting, annulment and withdrawal rights over the majority’s resolution.
Shareholder resolutions shall be contested or annulled if adopted under infraction
of the law or the company’s articles of incorporation, as stated by Article 157 of
the Commercial Code.
Under Article 95 of the Commercial Code founding shareholders will have
a maximum participation of 10 per cent of the net profits of the company for a period of
no longer than 10 years. In that regard the participation to which founding shareholders
are entitled, will be paid only after other shareholders are paid dividends for at least
5 per cent of the nominal value of their stock. The enforceability of this provision is subject
to the possession of founder share certificates as stated by Article 96 of the same law.
Board decisions may also concern shareholder decisions. Shareholder approval of
specific board decisions will be established by the articles of incorporation; such decisions
may include the appointment of executive officers such as the general manager, and the
approval of the yearly financial statements.

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ii Shareholders’ duties and responsibilities

As established in Articles 27 through 29 of the Commercial Code shareholders owe the
company the duty of fulfilling their monetary and non-monetary capital commitments.
Pursuant to Article 134 of the Commercial Code, in general terms the shareholders
will have the duty to meet at least yearly, within the four months following the closing of
the company’s previous meeting to:
a discuss, approve or deny approval of the company’s financial statements, the board
of director’s administration report, and the supervisory board inspection report;
b elect and appoint or revoke appointments of directors and supervisory board
members, as well as to set the duties and responsibilities of those appointed;
c hear and pass a resolution on the company’s project for dividend distribution; and
d hear and resolve any other matters set by the articles of incorporation.

As provided by Article 130 of the Commercial Code, shareholders will have no voting
rights in matters where they have personal or third-party interests contrary to those of
the company; if non-compliant, the shareholder will be liable for the damage caused.
Under law institutional investors’ duties are equal to those of any other
shareholder. Best practices in their participation as shareholders of a company include
the appointment of either a proxy or a power of attorney familiar with the corporate
purpose of the company as well as the nature of its operations to provide useful insight in
the shareholders meetings; moreover, given their financial nature, institutional investors
should be compelled to provide financial input on the company’s operations.
Guatemalan enforcement agencies lack best practice guidelines or codes for
shareholders; however, each shareholder should participate in the best interests of the
company provided that the company’s performance shall impact directly on their returns.

iii Shareholder activism
Shareholders’ say on pay of directors, officers and executives of a  company will be
stipulated by the articles of incorporation, or in a resolution of the shareholders’ meeting.
Pursuant to Article 174 of the Commercial Code a  derivative action may be
brought against directors on the company’s behalf following the previous agreement of
the shareholders appointing a designee to bring the suit against the administration of
the company; if the designee does not file suit within two months of the agreement, any
shareholder may do so on the company’s behalf.
Regardless of the previous provision and as stated by Article 175 of the Commercial
Code, a derivative action may be brought against one or more directors by shareholders
who represent 10 per cent of the company’s stock, provided that they are acting in the
interests of the company and not their own interests, and that the claimants did not vote
to waive the director’s liability.
Current regulation does not address either proxy battles or shareholder campaigns;
however, given that shareholders may perform any acts not expressly banned by law and
that shareholders votes may be delegated through proxies, it is likely that if a change in
corporate policy or governance is sought by a minority shareholder, he or she will use
a proxy battle as the most efficient way of achieving this objective considering that the
only other way to obtain the votes would be to pay in additional capital.

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iv Contact with shareholders
As mentioned above, and pursuant to Article 38.1 of the Commercial Code, the
mandatory standard of reporting to the shareholders is for the board to provide
availability of all documents, statements and reports to the shareholders within the
15 days prior to the shareholders’ meeting. The documents shall be made available in the
company’s registered offices.
As the law omits to address selective meetings and communication, and provided
that the mandatory reporting right to the shareholders is standard to all contact with
shareholders, the provisions for selective meetings and communication would have to be
regulated by the articles of incorporation.
Under the law, all registered shareholders of the company have the right to review
the same information prior to the shareholders’ meeting as mentioned above.
Pursuant to the shareholders’ voting agreement rights established in Article 116
of the Commercial Code, shareholders could agree on a no vote on the issuance of stock
by the company, or agree upon a vote against the increase in capital that would represent
the issuance of new shares; this would generate the effect of a standstill agreement.
Shareholders will be able to receive and verify company information within
the 15 days prior to the shareholder meeting. Neither proxy solicitation nor seeking
shareholders’ opinions in advance is common practice in Guatemala. The most common
issues concerning large blocks of shareholders are fights over company control, over the
appointment of directors to the board and the subscription of new shares to dilute the
share percentages of opposing groups.

VI OUTLOOK

The Guatemalan Ministry of Economy in a  joint effort with the Foundation for the
Development of Guatemala is pushing forward reforms to the Commercial Code
that will, inter alia, introduce fiduciary duties for directors and officers, and minority
shareholder protection provisions. Moreover, in a  joint effort the Superintendency of
Banks and the Guatemalan Central Bank are pushing forward a new Securities Market
Law, which is seeking to introduce considerable reforms to allow companies to access
alternatives means of financing and to promote alternative investment structures for
investors. These reforms could reach Congress during 2014 and, if passed, could provide
for an abrupt change to the corporate governance regime and to power struggles among
shareholders, as well as to compliance matters for companies.

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about the authors

Rodolfo Alegría
Carrillo y Asociados
Partner since 1997, and head of the corporate and finance law practice group,
Mr Alegría’s expertise and versatility involves a wide range of specialised practice areas,
from complex dispute resolution to high-end project finance matters. He has advised
important multinational corporations, and multilateral entities in corporate and finance
matters. He has also participated in complex M&A activity in the Central American
region, and large transactions as well. In the area of project finance, he has assessed
many international financial institutions in the negotiation of loans and implementation
of financial instruments. He has been recognised as an expert in energy and natural
resources matters in Guatemala, and has represented important groups related to the
energy sector, as director, across the Central American region. Additionally, having
experience in international arbitrations he contributes to the litigation practice group
and has participated as an expert witness at international level.

Christian Michelangeli
Carrillo y Asociados
Mr Michelangeli is currently an associate focusing on the firm’s fraud and white-collar
crime practice, as well as contributing to the bankruptcy and insolvency group. Before
joining the firm Mr  Michelangeli’s practice focused on corporate law and civil and
commercial litigation. His corporate law background and knowledge of insolvency
matters contribute to the firm’s high profile in cross-border litigation matters. In his
practice he has been involved in cases concerning enforcement of credit rights of foreign
creditors through trust structures in Guatemala, and he has participated in advising
insolvency administrators in joint prosecution cases against company directors and
officers for fraud and money laundering. Mr Michelangeli contributes to advising foreign

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clients in financial transactions with Guatemalan counterparts, as well as advising in

regulatory compliance matters with Guatemalan financial regulators.

Carrillo y Asociados
Diagonal 6 10-01 zona 10
Centro Gerencial Las Margaritas Torre II Nivel 7
Guatemala 01010
Tel: +502 2421 5700
Fax: +502 2421 5724
rodolfo.alegria@carrillolaw.com
christian.michelangeli@carrillolaw.com
www.carrillolaw.com

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