Companies Act 19,550 · Article 261 — Compensation of the board of directors

How much a corporation's board of directors may be paid (art. 261 LGS)

Article 261 of the General Companies Law limits the compensation of the board of directors and the supervisory council: in total it may not exceed 25% of profits, a cap that drops to 5% when dividends are not distributed and rises proportionally with distribution. Exceeding those limits requires express approval by the meeting.

Source: Act 19,550

What article 261

Article 261 sets the caps on compensation for directors and supervisory council members and the mechanism to exceed them with the meeting's approval.

Official text · Act 19,550, art. 261

The bylaws may set the compensation of the board of directors and the supervisory council; failing that, it shall be set by the meeting or the supervisory council, as the case may be.

The maximum amount of compensation, in total, that members of the board of directors and the supervisory council, as applicable, may receive—including salaries and other pay for performing permanent technical-administrative functions—may not exceed twenty-five percent (25%) of profits.

That maximum amount shall be limited to five percent (5%) when dividends are not distributed to shareholders, and shall increase proportionally with the distribution, up to that limit when the total profits are distributed.

When one or more directors' performance of special committees or technical-administrative functions, given reduced or nonexistent profits, makes it necessary to exceed the preset limits, such excess compensation may only be paid if expressly agreed by the shareholders' meeting, for which purpose the matter must be included as one of the items on the agenda.

Source: Law 19,550, art. 261 — InfoLEG (updated official text)

Commentary

The rule balances two interests: compensating management and protecting shareholders from having the board appropriate the profits. The general cap is 25% of profits; if no dividends are distributed, it drops to 5% and rises in proportion to what is distributed.

When directors performing technical-administrative functions or special committee duties need to be paid above those limits—typically in years with little or no profit—the law requires express approval by the meeting, with the matter included on the agenda. Without that requirement, the excess is subject to challenge.

Distinctions often confused

25% cap is not the same as 5% cap. 25% of profits is the maximum when dividends are fully distributed; it drops to 5% if none are distributed and rises proportionally with distribution.

Compensation within the cap is not the same as Compensation in excess. Within the cap, it is set by the bylaws or the meeting; the excess is only allowed with express meeting approval and a specific agenda item.

Practical impact

Setting board compensation above the caps without specific meeting approval is a frequent ground for challenge. In years without dividends, the margin shrinks sharply and the decision should be documented.

Frequently asked questions

How much can the board of directors receive in total?

In total, up to 25% of profits. If no dividends are distributed, the cap drops to 5% and rises proportionally with distribution.

Can more than the cap be paid?

Only with express approval by the meeting, including the matter as an agenda item, and generally for technical-administrative functions or special committees.

This page is informational and does not constitute legal advice nor replace professional consultation. It quotes the official text of the rule; for its application to a specific case, consult a licensed professional.

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