04 Aug The Role of the Legal Advisor

Following our blog post on how to professionalize your company’s governance through the role of the non-board Secretary, we at Navarro Llima Abogados would like to emphasize the importance of a somewhat overlooked role -one that remains mandatory and considerably useful in various contexts- namely, that of the Legal Advisor.

What is a Legal Adviser? 

To understand the role of the legal advisor, it is helpful to refer to the preamble of Law 39/1975, of October 31, on the appointment of legal advisors, which states the following:

“The vast majority of commercial companies benefit from legal advice within their management or governing bodies. However, there are also companies in which such advice is absent, resulting in resolutions being adopted without sufficient knowledge of the applicable legal framework. This may give rise to irregular actions and unnecessary litigation.

In order to ensure proper corporate legal governance, and in accordance with Article 3 of the General Statute of the Spanish Legal Profession, companies falling within the scope of the Act are required to appoint a lawyer to assist their management or governing bodies. The title of Legal Adviser has been chosen in order to distinguish this role from that of the company secretary, whose functions may continue to be exercised independently, and to make clear that the Act does not seek to impose the appointment of a general legal adviser for all of the company’s activities.”

The purpose of the Legal Adviser is to address the legal advisory needs of companies, which are generally met in one way or another, but may be lacking in others. The role is inherently preventive in nature, reflecting one of the core functions of legal advisers: the identification of legal risks before they materialise, the structuring of corporate decision-making appropriately, and the minimisation of the likelihood of future disputes. In today’s business environment, where regulatory compliance and corporate governance have become increasingly important, this preventive function is more valuable than ever.

Accordingly, the Legal Adviser is a practising lawyer who has been admitted to the relevant Bar Association. The company formally appoints the Legal Adviser to advise its management body on the legality of its resolutions, decisions and corporate actions. The company’s corporate structure is not a consideration in this regard. It is essential that the adviser’s professional involvement is accurately documented in the company’s corporate records. The objective is to provide legal certainty and prevent decisions from being taken without due regard to the applicable legal framework.

Practical Value 

As previously stated, the appointment of a Legal Adviser is mandatory in certain situations, as outlined below. However, it is important to consider this not only as a statutory obligation.

Even in instances where legal requirements do not mandate such an appointment, the role is highly pertinent for any company aiming to uphold sound corporate governance and effective decision-making processes. It is an irrefutable fact that proper legal oversight adds genuine value to any organisation.

The primary benefit is continuity. It is often the case that companies seek legal advice only after a dispute has already arisen, for example in relation to unpaid debts, hidden defects, contractual breaches or other legal issues. By the time this stage is reached, the available options are often limited. A Legal Adviser, by contrast, is involved on an ongoing basis in the company’s decision-making process, developing a thorough understanding of its business and operations, and is therefore able to identify and address legal risks before they become disputes.

The second key strength lies in the flexibility of the role. Act 39/1975 expressly allows a company’s articles of association to assign the Legal Adviser additional responsibilities beyond those strictly required by law. While the core function is mandatory and limited to advising the management body on the legality of its resolutions and decisions, companies are at liberty to broaden the scope of the role by agreement. The advantages of this approach are evident. For instance, a company may consult its Legal Advisor on the practical implications of a customer’s insolvency proceedings and on the customer’s actual financial position beyond the formal insolvency process. While this may not fall within the statutory duties of the role, such advice can help avoid significant commercial and legal risks.

As we outlined in our article on the non-director company secretary, the third advantage is that the Legal Adviser contributes to the professionalisation of corporate governance. This is particularly valuable in family-owned businesses, where the lines between family relationships and corporate decision-making can become blurred. Obtaining independent legal advice can help to maintain objectivity, improve decision-making processes and reduce internal tensions.

When is the appointment mandatory?

The circumstances under which compliance is mandatory are set out in Article 1 of the law governing this legal entity, which distinguishes between companies domiciled in Spain and those domiciled abroad.

For companies domiciled in Spain:

• The threshold is 300,506.05 euros for capital.
• The target is to reach a normal volume of business of 601,012.10 euros.
• The threshold is met when the number of permanent employees exceeds fifty.

For companies domiciled abroad:

• The volume of business at its branches in Spain must be equal to or greater than €300,506.05.
• The threshold is met when the number of its permanent employees in Spain exceeds fifty.

Implications of Non-Appointment

It should be noted that the absence of a legal advisor, when such an appointment is mandatory, does not automatically invalidate the resolutions of the governing body, as Law 39/1975 does not provide for that outcome. However, it does establish that this omission must be expressly considered in proceedings regarding directors’ liability. Therefore, it may work against them in any potential litigation.

This provision assumes even greater importance following the incorporation of the business judgment rule into Article 226 of the LSC, which requires that business decisions be made with sufficient information and through an appropriate procedure.

While this role has become less prominent in corporate practice (partly due to the economic thresholds set out in the Law becoming outdated), the legal advisor continues to be an essential component of good corporate governance. Their appointment provides greater legal certainty to the board of directors, especially in family-owned businesses where the professionalisation of management is essential.

At Navarro Llima Abogados, we work with our clients to determine whether their company falls under the Law’s mandatory provisions and assist them both in the appointment and statutory structuring of this role and in its effective implementation. We can either assume the role of external legal counsel ourselves or support its integration within the client’s own organisation.