In Part I on our website, we examined the legal nature and form of the Management and Control Agreement (MCA) – the instrument that regulates the relationship between a company and its manager. We analysed what a well-structured MCA should contain, which clauses are essential, which are advisable to include, and which “pitfalls” require special attention.
This article focuses on one of the most frequently discussed topics when entering into an MCA – the manager’s remuneration. In practice, questions often arise regarding the manner of determining remuneration, the competent body to adopt the resolution, the consequences of failing to follow the required procedure, the process for subsequent amendments, and the extent to which the parties are free to negotiate additional terms.
1. Validity of the Appointment of the Manager
The MCA must be signed on behalf of the company by a person expressly authorised by the general meeting of shareholders or the sole owner. However, this person cannot freely determine the remuneration – the law requires that it be set by a resolution of the general meeting.
The resolution appointing the manager is indispensable, as it defines the internal relationship between the company and its manager, under the principle that the manager is subject to the will of the shareholders. Without such a resolution, no valid legal relationship arises.
The consequence is the nullity of the agreement: the manager has no legal basis to claim remuneration, and the company has no grounds to demand accountability for management. Any payments made on this basis are also questionable.
2. Resolution on the Amount of Remuneration
Case law is clear: a resolution is required not only for the appointment of the manager but also for determining the specific amount of remuneration.
While the MCA may specify details such as the method of payment (deadlines, currency, conditions) and other rights and obligations, the amount of remuneration must always be set in advance by the general meeting.
The absence of such a resolution renders the MCA void in this part. Even the signing of the MCA itself cannot compensate for the lack of a resolution. The same principle applies to subsequent amendments:
- An annex to the agreement has no legal effect without an express resolution of the general meeting;
- Implied conduct (e.g., systematically paying higher remuneration) is not sufficient to consider the MCA duly amended;
- Discussions of the matter at a general meeting are not enough – the result must be a concrete resolution establishing, increasing, or decreasing remuneration.
3. What May Be Freely Negotiated in the MCA?
The requirement for a resolution of the general meeting applies only to the appointment and the amount of remuneration. All other clauses may be freely negotiated between the company and the manager. These may include:
- the method and frequency of payment;
- rules for taking leave and the possibility of compensation;
- termination compensation (“golden parachute”);
- additional benefits – company car, health insurance, bonuses.
In practice, such terms are considered valid even if modified by implied conduct, provided that neither party disputes their validity.
4. Risks of Failing to Adopt the Required Resolution
The most common risks are:
- Nullity of the MCA – if remuneration is paid without a resolution of the general meeting;
- Invalidity of amendments – if the amount of remuneration is changed without such a resolution, payments made cannot be treated as tacit acceptance of the change.
Courts emphasise that resolutions of the general meeting must be clear and unambiguous and cannot be inferred by interpretation. Even if the company does not object to payments or established practice, this does not cure the lack of a resolution.
5. Additional Remuneration: Bonuses and Tantième
In addition to fixed remuneration, the manager may also receive additional incentives. Schemes often combine the predictability of monthly remuneration with performance-based bonuses.
Examples include:
- bonuses for exceeding specific financial indicators (e.g., EBITDA above a certain threshold);
- bonuses calculated as multiples of the basic remuneration upon achieving concrete targets;
- tantième – a percentage of the company’s profit, which is increasingly being replaced by modern bonus schemes. It does not have the character of employment remuneration and is therefore subject to the general five-year limitation period under the Bulgarian Obligations and Contracts Act.
6. Practical Conclusions
Without a resolution of the general meeting on remuneration, the MCA is void in this part.
The MCA only specifies what has already been resolved – it cannot substitute the resolution itself.
Implied conduct and oral arrangements are not sufficient. Any amendment of remuneration always requires an explicit resolution.
Additional benefits and bonuses may be freely negotiated, allowing flexibility for tailored solutions.
The article above is for information purposes only. It is not a (binding) legal advice. For a thorough understanding of the subjects covered and prior acting on any issue discussed we kindly recommend Readers consult Ilieva, Voutcheva & Co. Law Firm attorneys at law.
