When It’s Already Too Late: The Cost of Not Having Decided

What happens to the family and the business when capacity is lost without any planning, and what can still be done.

Series: support measures · 1 · 2 · 3 · 4 · 5 · 6

The four previous articles in this series described instruments: autocuratela, the preventive power of attorney, the conversation that makes them possible, and the governance of the family business. They all share one condition, and it’s the same one: they have to be granted while they still can be. This article is about the opposite case, which is by far the most common.

I’m writing this because there’s a very common and very mistaken intuition: that doing nothing leaves things as they were, in a kind of neutral holding pattern until someone decides. That isn’t how it works. When capacity is lost without any planning, the family doesn’t find a problem waiting to be solved — it finds a much more expensive one. And one of the reasons, paradoxically, is the very reform that came to protect people.

What follows first walks through why some instruments remain available and others don’t, then what happens in order: why nothing happens for months, why what gets signed during that period is almost impossible to undo, what the first real blockage is, what has to happen once someone finally decides to go to court, and what happens if the person objects. It ends with what can still be done, which is less than one would like but considerably more than nothing.

The facts of the case

I’m sticking with the same family from the previous article, and the details remain fictional. A five-member board, the founder chairing it with sixty percent of the capital, her three children as directors, and the representative of the minority shareholder.

The difference is that here, nobody did anything, or not enough. There’s no preventive power of attorney. No autocuratela. The bylaws date from 1994 and have never been touched. The family protocol does exist: it was drafted eight years ago, includes a shareholders’ agreement among the siblings, and regulates in detail what happens to the shares if the founder dies or decides to retire. But it assumes the handover arrives by one of those two routes, a death that operates on its own or a departure decided by the person leaving. Nobody anticipated what happens if she neither dies nor retires, simply stops being able to decide, and keeps signing. That scenario triggers nothing: neither the shareholders’ agreement nor the bylaws contain a clause allowing her to be replaced without her own involvement or a court ruling.

Three levels, and a window that closes

Before getting into what happens, it helps to lay out the instruments in order, because they aren’t all the same, and above all they don’t stop being available at the same time. There are three levels, each with a different signatory and different requirements.

The first is individual will. Autocuratela, the preventive power of attorney and, in healthcare matters, the living will. A single person grants them before a notary. They require no one else’s agreement, no meeting, no majority, no conversation. They’re signed in an afternoon and take effect.

The second is family agreement. The protocol, or the shareholders’ agreement that stands in for it. Several people sign it, it binds those who sign it, and it can’t be enforced against the company.

The third is corporate effect. Bylaws, appointments, registered powers of attorney. It requires a shareholders’ meeting or the governing body, and therefore votes.

The distinction matters because the second level isn’t always available, and neither is the third. A protocol requires agreement, and many families don’t have one: because they’ve never raised the subject, because the founder can’t get the children to agree among themselves, because the family has been divided for years, because there’s a specific estrangement with one of them, or simply because no one has ever wanted to open that door. And even when the protocol does exist, as in this family, it tends to assume the handover will come through death or an agreed retirement, not through an incapacity that no one pins to a date.

And the third level depends on your position in the capital. This article and the previous one are both built around a founder with sixty percent, but the hardest case is that of someone with a mere controlling minority. Someone with thirty-five percent can’t approve any change to the bylaws alone, so any protection depends on persuading others. If the family is also divided, that person doesn’t have level two either. All that’s left is the first level. And that person is more exposed than the majority shareholder, not less, because it takes fewer votes to push them aside.

From that follows what I think is the single most useful conclusion in this whole series, and one we haven’t spelled out until now: individual instruments are the only ones that depend on no one else. There’s no need to convince the children, gather a majority, or bring anyone to the table.

And there’s an inversion worth underscoring, because it runs against the usual intuition: the worse off the family is, the more the first level matters, not less. Planning is usually thought of as something orderly families do. It’s the other way round. A united family will eventually sort things out badly, but it will sort them out. A distanced family is the one most likely to end up in contentious proceedings, and the one that most needs the person to have decided everything on their own beforehand. That’s part of what the power to exclude specific, named people in an autocuratela is for, without having to explain why. It isn’t a pleasant thing to raise in a consultation, but sometimes it’s the only thing that keeps the wrong person from being the one who decides.

What a protocol does when it’s done in time

This is a good place to clear up a misunderstanding about the family protocol, because it’s usually presented as a statement of intentions, and it’s considerably more than that.

A protocol isn’t negotiated in a vacuum: it’s negotiated while the founder can still vote. And that detail changes everything, because it means that at that moment all three levels are open at once. The power of attorney can be granted, the bylaws can be amended, and an agreement among siblings can be reached — all in the same operation, with the same signature available.

That’s why a well-drafted protocol doesn’t just say who will replace whom. It moves the vote to where it will be needed, while it can still be moved. And there are two instruments for that which deserve far more attention than they usually get.

Usufruct with reservation. Art. 127 of the Spanish Capital Companies Act (LSC) provides that where shares are subject to usufruct, shareholder status rests with the bare owner, and that, unless the bylaws state otherwise, it is the bare owner who exercises shareholder rights; the usufructuary in any case retains the right to dividends declared during the usufruct.

Consider what that allows. The founder gifts her children bare ownership and reserves the usufruct for herself. From that point on, they are the shareholders and they are the ones who vote, and she keeps drawing income. It solves, in a single move, three problems this series has dealt with separately: the capital stops being able to end up voiceless, because it’s now exercised by people who still can; it settles what the founder will live on, which is the real reason nobody proposes anything in so many families; and it takes advantage of the tax window on the gift before it closes. That said, if the children do not receive equal shares, the gift enters the territory of forced heirship (legítima) and collation: it will be accounted for when the estate is settled, and if it exceeds the disposable portion, it can be challenged through a reduction action. The split is worth deciding with that in mind, not just the voting outcome.

One check is essential first: that allocation is a default rule, not a mandatory one. Many family-business bylaws assign the vote to the usufructuary, precisely so the founder doesn’t lose control when making a gift. If that’s how they’re drafted, the operation solves nothing until they’re amended.

Shares with unequal voting rights. Art. 188.1 LSC provides that in a limited liability company (SL), unless the bylaws state otherwise, each share carries one vote. That qualifier allows for plural voting and non-voting shares, and therefore for decoupling ownership from power. In a public limited company (SA), it’s prohibited: art. 188.2 LSC declares invalid the creation of shares that alter the proportionality between nominal value and voting rights. One more asymmetry between the two corporate forms, and one of the ones that matters most. One practical caveat: if the change affects shares that already belong to other shareholders, a shareholders meeting vote is not enough on its own. Art. 292 LSC requires the individual consent of the shareholders affected.

And this is where the sentence that sums up the whole article comes from. When nothing was done, what’s been lost isn’t a document: it’s a window. The period — which can last for years and which no one sees passing — during which all three levels were open at once and the vote could still be moved.

First, for a long time, nothing happens

This is the deceptive phase, and it lasts longer than anyone expects.

The business runs. Orders come in, payroll goes out, the board meets on the same day every month. The founder signs whatever is put in front of her, and she signs it well, because signing is a preserved gesture that survives, for quite a while, the ability to understand what’s being signed. There are still good days at meetings, and the good days are the ones the family remembers whenever someone suggests something ought to be done.

That’s exactly the problem. Cognitive decline isn’t a switch, it’s a slope, and on a slope there’s no single day on which it becomes obvious that the line has been crossed. It always seems too soon, until one day it’s too late. And because no single event forces anyone to react, the reaction gets postponed indefinitely, one reasonable small decision at a time.

Meanwhile, without anyone noticing, two clocks are running. One is the clock on what’s being signed. The other is the clock on the deadline to challenge it.

What keeps getting signed

Here is the finding that surprises families the most when I explain it, and the one that justifies this entire article.

Everyone’s intuition is that if the mother wasn’t in a fit state, whatever she signed can be undone. That a contract signed by someone who didn’t understand what she was doing is worthless. And that, therefore, not having done anything can still be fixed retroactively.

That isn’t how it works, and the reason lies in the reform itself.

Art. 1263 of the Civil Code (CC), which used to list who could not give consent, today refers only to non-emancipated minors. The category of the adult who cannot consent because of their condition has disappeared from Spanish law. Capacity is presumed in every adult, always, and that presumption is the heart of Law 8/2021, of 2 June. It’s a genuine achievement, and rightly so. But it has consequences.

Art. 1302 CC, in its third paragraph, does provide for a specific route to annulment: for contracts entered into by persons with disabilities who have support measures in place, when those measures were disregarded although they were needed. It’s worth reading that condition slowly. That route presupposes that support measures had already been put in place. In our case there are none, because nobody granted anything and nobody went to court. You cannot disregard something that doesn’t exist.

So the family doesn’t have the short route available. What’s left is the long one: arguing that at the precise moment of signing, the consent required by art. 1261 CC was absent, and proving it. Proving a person’s mental state on a specific afternoon, often two or three years later, against the assessment of capacity made by the notary who authorized the deed. It’s difficult, it’s expensive, and it fails more often than it succeeds.

And as if that weren’t enough, the clock is running. Art. 1301 CC sets a four-year limit for the annulment action and, in these cases, counts it from the date the contract was signed, not from when the family finds out. The clock starts on the day of the signature, when no one yet suspects anything.

The conclusion is uncomfortable, and it’s worth stating in full: not having done anything doesn’t preserve your options — it destroys them. A founder who has granted a preventive power of attorney is better protected against whatever she signs in excess, because there’s a route to annulment designed exactly for that. A founder with nothing in place is protected only by a presumption of capacity that, on this specific ground, works against her.

The first real blockage

While that’s happening quietly, the first visible consequence arrives, and it isn’t dramatic: it’s accounting.

Annual accounts have to be drawn up by the directors and signed by all of them; if a signature is missing, the reason has to be stated. No delegation can get around that requirement, because drawing up the accounts is a non-delegable power of the board. So a financial year eventually arrives in which the accounts either don’t get drawn up, or get drawn up in a form no one is willing to certify, and they don’t get filed.

From that point, art. 282 LSC kicks in: as long as the failure persists, no document concerning the company can be filed with the Mercantile Registry. Not a change of registered address, not a new power of attorney, not a capital increase, not the appointment of a successor. The company keeps operating normally on the outside, and stops being able to change on the inside.

It’s worth knowing the exception, because it’s the only door left open, and almost no one uses it in time. Art. 282 LSC itself exempts from the closure, among other things, filings relating to the removal or resignation of directors and to the revocation of powers of attorney. In other words: even with the registry page closed, it’s still possible to record that someone has left office and that a power of attorney has been revoked. It isn’t much, but it’s exactly what’s needed to unblock the situation.

Someone has to go to court

At this point there’s no route left but the judicial one, and this is where the part begins that no family ever imagines until they live through it.

Art. 757 of the Civil Procedure Act (LEC) entitles the person themselves, their spouse, a descendant, an ascendant, or a sibling to initiate proceedings for the provision of support measures. Any of the children can do it. And if none of them does, the Public Prosecutor’s Office must initiate it once it becomes aware of the situation.

The ordinary route is voluntary jurisdiction proceedings, governed by Act 15/2015. And it has two requirements worth anticipating, because they’re the ones that hurt the most.

The first is that the application must be accompanied by an expert report from specialized social and healthcare professionals on the appropriate support measures. In plain terms: someone has to get the mother to undergo an assessment. Someone has to raise it with her, go with her, and be present while she’s asked questions whose answers will determine whether her signature is taken away.

The second is the hearing, whose core is an interview between the judge and the person. It isn’t a written formality, and it can’t be delegated. The founder sits down in front of a judge who asks her how she’s managing her affairs, and her children wait outside for the outcome of that conversation.

None of this is objectionable — in fact, it’s one of the law’s real achievements: the new system puts the person at the center and listens to them before deciding anything about them. But it’s a process, with its own timeline, and that timeline is measured in months.

And if she objects

This is the scenario that has to be faced head-on, because it’s common, and because it’s the one that breaks families.

The law protects a person’s wishes even when those wishes run against their own financial interest. That’s why a person’s objection to any form of support closes the voluntary jurisdiction proceedings. The judge can order provisional measures for a short period, but the matter leaves the amicable route and moves to contentious proceedings.

And contentious means exactly what it sounds like. It means a lawsuit, with a claimant and a defendant. It means a filing with a child’s name at the top and, opposite it, their mother’s name. It means a statement of defense, evidence, a hearing, a judgment. It means someone has to explain it to her, that she understands it only partly, and that what she understands is that her children have taken her to court.

I’ve seen families survive deeply unfair inheritance splits, and I have never seen one come through this intact. The damage isn’t done by the judgment, which is usually reasonable. It’s done by the procedure itself, which forces the children to argue in writing, for months, that their mother isn’t fit — and to back it up with evidence.

And it’s worth underscoring: this doesn’t happen because the family behaved badly. It happens because, by that point, there’s no path left that doesn’t run through this. The one that would have avoided it closed years earlier, on some ordinary afternoon when it was decided that it was still too soon to see a notary.

Meanwhile, the business

The civil proceedings don’t wait for the company, and the company doesn’t wait for the proceedings, and that mismatch is where the urgent problems come from.

There’s one instrument that helps, and it’s worth requesting as early as possible: the judicial guardian (defensor judicial), who can be appointed as a precautionary measure within the proceedings. Art. 762 LEC allows the court to adopt, on its own initiative, the measures necessary to protect the person or their assets, and a court-appointed judicial guardian can attend the shareholders’ meeting and vote the founder’s shares. In practice, it’s the substitute for the attorney-in-fact who was never appointed.

On the corporate side, if the governing body fails to call a meeting it’s required to call, art. 169 LSC allows any shareholder to ask the Mercantile Registrar to order that a meeting be called. It’s a real remedy, it costs little, and it arrives faster than almost everything else. And yet it’s almost never used — not out of legal ignorance, but because using it means taking the first step against the founder, and we already know why nobody wants to be the one who takes it.

Those who looked on are liable too

There’s one more consequence that tends to get overlooked, and one that non-executive directors and professionals who sit on family boards should be aware of.

Passivity isn’t neutral. Directors have a duty of diligence, and the business judgment rule protects business decisions made on sufficient information — not the sustained failure to exercise a governance duty. A board that knows for two years that its chair is no longer fit to hold the position, and does nothing, isn’t making a debatable business decision. It isn’t making a decision at all.

The realistic exposure is liability for damages. If the board’s omission causes harm to the company, it can be pursued through a derivative action, and that requires no ground for dissolution or any extreme outcome — the harm and the failure to act are enough.

Art. 367 LSC is also frequently cited, and it’s worth placing it correctly, because its threshold is higher than it’s usually given credit for. It only comes into play if a legal or statutory ground for dissolution actually arises — in these cases, that would be paralysis of the corporate bodies — and we’ve already seen that requires permanent, insurmountable paralysis. If it did get that far, then yes: directors who fail to call the meeting within two months, or who subsequently fail to seek judicial dissolution or, where applicable, insolvency proceedings, would be jointly and severally liable for the company’s subsequent obligations, and the law presumes that any claims are for obligations arising afterward unless the directors prove otherwise. That’s a tail-risk scenario, not the ordinary one.

Put differently: there comes a point at which staying silent stops being a gesture of respect toward the founder and becomes a financial risk of one’s own. For many directors — and it isn’t cynical to say so — that’s the argument that finally unblocks the conversation.

What can still be done

None of the above means there’s nothing left to do. It means the options are worse and more expensive, not that they’ve run out. If you’re reading this from inside the situation, here’s what I’d look at, in this order.

Check whether it can still be granted. This is the first thing to do, and almost no one tries it, because it’s written off too soon. Capacity isn’t a switch, and the law doesn’t require full capacity: it requires sufficient understanding of the specific act being carried out. It’s the notary who assesses that, at that moment, for that particular act. A well-explained preventive power of attorney, granted on a good day and backed by a medical report, can be perfectly valid even once it’s already clear the person could no longer sell a company. It’s worth trying before anything else, because it can resolve in an afternoon what a court takes months to resolve worse.

Reach an agreement among those who still can. There’s an asymmetry here worth taking advantage of: all the first-level instruments depend on the founder’s signature, but an agreement among the siblings doesn’t. They retain full capacity and can still sign. The document needed now isn’t the classic protocol that regulates the transfer of shares, but something shorter and more urgent: an agreement on how they’re going to behave while what’s coming plays out. Who initiates the proceedings and on whose behalf. Who is proposed as curator, which doesn’t have to be the eldest. Who takes the seat on the board. What happens to the founder’s compensation, which is the issue nobody raises and which poisons everything else. And a commitment not to act unilaterally: that none of them will call a meeting, push for removals, or revoke powers of attorney on their own while the proceedings are under way.

That said, it’s worth knowing which part of that is enforceable and which isn’t, because it isn’t all the same. The corporate and financial provisions do bind those who sign them, and can be raised to a public deed and enforced: the sharing of costs, compensation for the role, payments that continue, the commitment not to call a meeting. Who initiates the proceedings and who is proposed as curator, on the other hand, isn’t enforceable against anyone: standing under art. 757 LEC is granted in the person’s own interest and isn’t at the children’s disposal, and the appointment of the curator is decided by the judge. That part is a gentlemen’s agreement, and it should be called exactly that.

And it’s still worth signing, for a reason that has nothing to do with law. What decides whether the case stays in voluntary jurisdiction or turns into a lawsuit isn’t whether someone could sue a sibling for breaking a promise. It’s whether the three of them arrive in court with a single proposal and no one standing opposite them. A written, signed agreement achieves that even though it isn’t enforceable, for the same reason so many commitments between people who know each other hold up: breaking it carries a cost within the family that needs no judge to collect.

Prepare the case so it doesn’t turn contentious. The difference between voluntary proceedings and a lawsuit is almost always decided by the groundwork done beforehand. Whether the siblings arrive in agreement. Whether the person proposed as curator isn’t the one who generates the most conflict, even if she’s the eldest. Whether the founder has already been told, by someone she accepts, what’s going to be requested and why. This is where prior family mediation is worth, quite literally, years of proceedings.

Ask the ruling to address the directorship. This is a technical detail with large consequences. The ruling that establishes the support measures can expressly address the founder’s ability to continue exercising her role as director, and it’s worth requesting that, because the corporate route for removing someone from office doesn’t work on its own.

Separate who provides support from who governs. The fact that the child called to be curator is also the one taking the board seat doesn’t, by itself, create a conflict of interest. The conflict, if it appears, appears act by act: when the same person acts in the same agreement both in their own name and on their mother’s behalf. But when it does appear, it requires the appointment of a judicial guardian to stand in for that specific matter, and that adds weeks all over again. Better to think it through beforehand than to discover it at the notary’s office.

Unblock the corporate side through the doors that stay open. The removal of directors and the revocation of powers of attorney can still be filed even with the registry page closed. The remedy of a registrar-ordered meeting exists. The accounts can still be drawn up, stating the reason for the missing signature. None of those three things resolves the underlying problem, but all three keep the legal problem from also becoming an operational one.

In summary

When nothing has been planned for, what shows up isn’t a problem waiting to be solved: it’s a worse one.

What was signed is hard to undo, because the law presumes every adult has capacity, and the route to annulment designed for these cases requires that support measures had already been in place — which is exactly what’s missing. And the deadline runs from the date of signing, not from when someone finds out.

What follows is a process that begins with a medical assessment the person has to be persuaded to accept, continues with an interview of her before a judge, and that, if she objects, stops being a case and becomes a lawsuit brought by the children against their mother.

And while all that is happening, the company accumulates unfiled financial years, closes its registry page, and exposes its directors to a personal liability none of them sought.

None of this happens out of malice or negligence. It happens because the decision that would have avoided it had to be made years earlier, when it seemed unnecessary, and because of the three levels available, only one needs no one else. That’s the one worth always having signed, whatever kind of family you have and whatever percentage you hold. It’s cheap, it’s fast, and it’s the only one that remains entirely in your own hands.

There’s one last matter left in this series, and it’s the only one that isn’t about money or companies. It’s about the body, and about who decides for it once you can no longer say anything yourself. That’s the subject of the next article.

Are you already in this situation and don’t know where to start?

At Alta Mediación we combine corporate law and family mediation precisely for cases that arrive late: we assess whether it’s still possible to grant the necessary instruments, help siblings arrive in court with a single proposal instead of three, and unblock the corporate side while the proceedings move forward. In the first consultation we identify what’s covered, what’s still exposed, and what can be done this same week.