Partial reform of the capital companies law
Law 25/2011, of 1st August, of partial reform of the Capital Companies Law (“LSC” for Ley de Sociedades de Capital (“LSC”)) and incorporation of Directive 2007/36/EC of the European Parliament and the Council, date 11th July 11, on the exercise of certain rights of shareholders in listed companies was published last 2nd August 2011 in the State Official Gazette.
As established in the statement of reason, this law for partially reforming the LSC intends to (i) achieve a cost reduction in capital companies, (ii) eliminate some of the most unjustified differences between joint stock companies and limited liability companies and (iii) the incorporation of the aforementioned Directive 2007/36/EC into our regulations.
I will focus my attention on the two first issues, thus not summarizing the adjustments undergone by the LSC under this reform, but stressing such aspects that I consider more relevant and which will probably concern the agents affected by such regulation.
The first important modification that will affect the company practice is the new legal right of cessation stipulated in the new article 348bis of the LSC. Such right is conferred to the partner that had voted in favour of the distribution of dividends as of the fifth fiscal year counted from the registration of the company with the Companies Registry if the general meeting has not agreed the distribution as dividend of, at least, a third of the profits attached to the corporate purpose operation made during the previous fiscal year. In practice, this amendment will imply the dissident partner being entitled to cease by transferring its shares or stakes for their fair value. This means a violation of the majority principle in the Spanish company law and a radical change with respect to the minority partner that may be against the non-distribution of dividends, which will now hold a strong position in the ordinary meeting. Initially, I come up with two consequences: firstly, the company’s feasibility can be endangered if such third of the operating profits is distributed and secondly, the cessation right may become unenforceable because the partners or the company has not resources enough to acquire the shares or stakes of the minority partner exercising its right. Traditionally, disputes between partners derived from the company following a non-distribution of dividends policy (which is now quantified in less than a third of the operating profits) were resolved in courts in favour of the minority partner if the majority had taken advantage in any manner whatsoever. Since the effective date of the partial reform (2nd October 2011), we will see how this problem is resolved. Furthermore, the concept of corporate purpose operation profits is maintained, which already existed for the usufruct liquidation, which has generated not less interpretative conflicts for doctrine and case law.
Modifications in the joint stock companies and limited liability companies’ general meetings call must be also stated. The possibility to provide in the articles of association (unless shares are bearer shares) that the general meeting is called under an individual communication to shareholders without the need to publish any announcement, has been assimilated to joint stock companies. The most outstanding amendment in this scope is, undoubtedly, the reform to palliate interpretative doubts arisen under Royal Decree-Law 13/2010 that introduced the meeting call by means of the publication of the announcement on the company’s website. A new article 11bis has been introduced, which regulates the “electronic seat”. The competence to create such seat falls on the general meeting, which will register the electronic seat with the Companies Registry or notify it to all partners, the management body being liable for certainty evidence of the insertion of contents on the website and the date when the same was made. In my point of view, the electronic seat that should have meant more agility and thus cost saving, will imply a new and complex procedure. Therefore, it will not be unusual to see meeting calls by means of the publication of announcements in newspapers to avoid problems and produce legal certainty or individual communications if the articles of association may provide so. The obligation to call the meeting at the request of the minority within a term of 2 months as of the requirement to do so, is now established. The formal requirement to establish the position of the person making the call in the call announcement, has been also instituted.
Joint stock companies are assimilated the possibility already provided for limited companies to stipulate in the articles of association different forms to organize the company management.
The obligation in the joint stock companies to publish the announcement for change of the corporate name, domicile, replacement or modification of the corporate purpose and dissolution of the company, is removed.
Regulation of the management legal person is now law ranked, which until then was only regulated in the Companies Registry Regulations. It is curious and worth mentioning that the law project (and the statement of reasons of the law finally approved) provided the joint and several liability of the natural person representative of the legal person appointed as director, which was not finally incorporated.
Lastly and following the legislator’s tradition to modify another laws and regulations not even supported by the law title, Third Final Provision of Law 25/2011 introduces a modification of sections 4 and 5 of the Structural Modifications Law to incorporate into a law what was already said by the registry practice (included in the Resolution of the General Agency for Registries and Notaries Public dated 2nd February 2011) establishing the obligation to have an independent expert report on the merger project regarding the opinion of whether the capital contributed is equal, at least, to the capital of the new company or the amount of the capital increase of the taking-over company. I understand that this obligation should not be required in mergers where no capital increase of the taking-over company exists.
Pablo Font Torent
Legal Department