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Chapter 3:
I. General Overview: Shares and Participations
- Shares and Participations: ○ Participations (in an S.L., Sociedad Limitada) and Shares (in an S.A., Sociedad Anónima) are two types of ownership interests in a company. They represent fractional parts of the company's capital. Each unit of participation or share is an indivisible aliquot part of the company's share capital. ○ Aliquot Part: Shares or participations are considered aliquot parts, meaning they represent an equal fraction of the total capital of the company. The total capital is made up of the sum of all individual shares or participations. ○ Indivisibility: These shares or participations cannot be split further. If several individuals hold a single share or participation, the ownership is considered co-ownership, meaning they share the rights and responsibilities associated with that share. ○ Accumulation: A person can own multiple shares or participations, and even all of them. This flexibility allows for the possibility of sole ownership (i.e., one individual owning the entire company). However, shares or participations can still be transferred, pledged, or encumbered individually.
II. Value of Participations and Shares
- Nominal Value: ○ Nominal value refers to the base value of a share or participation as stated in the company's founding documents. It is an accounting figure and represents the proportion of the company’s share capital attributed to each share or participation. ○ The sum of the nominal values of all shares/participations equals the total share capital of the company. ○ Example: If a company has a share capital of €100,000 and issues 100,000 shares, the nominal value of each share is €1. ○ Usually, shares and participations have the same nominal value, though there can be variations, especially in S.A.s (Sociedad Anónima), where different "series" of shares with varying nominal values can be issued.
- Issue Value: ○ Issue value is the amount that a shareholder pays to acquire a share or participation. This value can be higher than the nominal value, but not lower. ○ Shares/participations issued above their nominal value are said to be issued “at a premium” , which means the issuing price exceeds the nominal value. This difference between the issue price and nominal value is referred to as the premium. ○ Example: If a share has a nominal value of €1, but the company issues it for €1.50, the share is issued "above par," with a €0.50 premium.
○ If the issue price equals the nominal value, the shares are issued “at par”.
- Real or Fair Value: ○ Fair value refers to the economic value of the shares or participations in the market, reflecting the true worth of the company. In listed companies, the fair value is usually the quoted market value (price at which shares trade in the market). For unlisted companies, it refers to the market value , which is the price at which shares would likely exchange hands in an ordinary transaction. ○ The fair value can be greater or lower than the nominal value, depending on the economic health and market conditions of the company. When the economic value of the company is higher than its nominal capital, the fair value will exceed the nominal value.
- Theoretical Accounting Value: ○ This value is derived from dividing the net worth (the assets minus liabilities) of the company by the total number of shares or participations. It represents the value of the shares based on the company’s financial standing. ○ Example: If a company has €200,000 in assets and €50,000 in liabilities, its net worth is €150,000. If it has 100,000 shares, the accounting value per share would be €1.50.
III. Rights of Partners (Shareholders)
- Rights Conferred by Shares/Participations: ○ Holding a share or participation in a company grants the holder partner status. The partner is entitled to certain rights, which are stipulated in the LSC (Ley de Sociedades de Capital, the Spanish Companies Act) and the company’s bylaws. These rights include: ■ Right to Dividends: Partners have the right to a share of the company’s profits (if dividends are declared). ■ Voting Rights: Shareholders/partners can participate in decision-making at general meetings, influencing the management of the company. ■ Right to Transfer or Sell: Partners can transfer their shares or participations to others, subject to any restrictions set by the company’s bylaws or by law. ■ Pre-emptive Rights: In some cases, existing shareholders may have the right to maintain their proportion of ownership by purchasing additional shares when the company issues new ones.
- Partner's Role in Representation and Transmission: ○ Representation: Partners or shareholders are typically represented by a proxy or can act themselves at the company’s meetings. This representation allows them to vote on company decisions, including electing directors or making other important corporate decisions. ○ Transmission of Shares or Participations: Shares or participations can be transferred or transmitted to other persons. In the case of co-ownership, a specific
Assets, Net Equity, and Liabilities: Detailed Explanation
In this context, we're reviewing a company's balance sheet , which breaks down the company's assets, net equity (shareholder's equity), and liabilities. Below is a detailed explanation of each section:
1. Assets:
Assets are divided into two categories: non-current assets and current assets.
● Non-current assets: These are long-term assets that the company intends to use for more than one year. In this case, non-current assets amount to €10,000. These might include property, machinery, long-term investments, etc. ● Current assets: These are short-term assets that the company expects to convert into cash or consume within one year. In this example, current assets also total €10,000. This might include inventories, accounts receivable, cash, etc.
Total assets: €20,000 (the sum of non-current and current assets).
2. Net Equity (Shareholders' Equity):
Net equity represents the residual value of the company's assets after deducting all its liabilities. It is essentially what belongs to the shareholders or partners of the company.
● Share capital (Capital social): This is the initial contribution or the nominal value of the shares or participations in the company. Here, the share capital is €3,. ● Share premium (Prima de asunción): This is the amount that shareholders pay over and above the nominal value of shares or participations. In this case, the share premium is €6,. ● Reserves: These are profits the company has retained from previous years instead of distributing them as dividends. Here, the reserves amount to €1,. ● Profit for the year (Resultado del ejercicio): This is the net profit earned by the company during the most recent accounting period. Here, the profit for the year is €1,.
Total net equity: €12,000 (the sum of share capital, share premium, reserves, and profit for the year).
3. Liabilities:
Liabilities represent the company's obligations, or what it owes to others.
● Non-current liabilities: These are debts or obligations that the company is required to settle beyond one year. In this case, the non-current liabilities amount to €4,. ● Current liabilities: These are short-term debts or obligations that the company must pay within one year. Here, the current liabilities also total €4,.
Total liabilities: €8,000 (the sum of non-current and current liabilities).
Calculation of the Value of Social Participations (Shares)
This example calculates the value of social participations (shares) in a Limited Liability Company (S.L.) based on certain data.
Given:
● Number of participations: 3,000 participations (shares). ● Market value of the S.L.: €15,000.
Types of Value:
- Nominal Value: The nominal value is the value assigned to each participation by the company’s founding documents. In this case: Nominal value=Share capitalNumber of participations=3,000€3,000=1€ per participation.Nominal value=Number of participationsShare capital=3,0003,000€=1€per participation. Result: The nominal value of each participation is 1 €.
- Issue Value: The issue value takes into account both the nominal value and any premium paid above the nominal value (the share premium). Here, the issue value is calculated by adding the share capital and the share premium, then dividing by the number of participations: Issue value=(3,000€+6,000€)3,000=9,000€3,000=3€ per participation.Issue value=3,000(3,000€+6,000€)=3,0009,000€=3€per participation. Result: The issue value of each participation is 3 €.
- Theoretical Accounting Value: The theoretical accounting value reflects the value of the participations based on the company’s net equity. It is calculated by dividing the net equity by the number of participations: Theoretical accounting value=12,000€3,000=4€ per participation.Theoretical accounting value=3,00012,000€=4€per participation. Result: The theoretical accounting value of each participation is 4 €.
- Fair Value: The fair value is the estimated market value of the participations, reflecting their value in an open market transaction. Here, the fair value is calculated by dividing the market value of the company by the number of participations: Fair value=15,000€3,000=5€ per participation.Fair value=3,00015,000€=5€per participation. Result: The fair value of each participation is 5 €.
subscription right when the company issues new shares or convertible bonds. This means they have the right to purchase additional shares or bonds before they are offered to the public, which allows them to avoid dilution of their ownership percentage.
- Attend and Vote at the General Meetings : Partners in an S.L. have the right to attend general meetings of the company, where important decisions are made, such as electing directors, approving financial statements, or amending the company’s bylaws. They also have the right to vote on these matters, either in person or through a proxy.
- Challenge the Social Agreements : Partners have the right to challenge decisions made at the general meetings if they believe the decisions are not in accordance with the law or the company’s bylaws. This challenge is typically done through legal action in court.
- Information : Partners are entitled to receive information about the company’s operations, finances, and other relevant matters. This includes access to financial statements, management reports, and other documents necessary for the exercise of their rights.
Representation and Transfer of Participations (Shares)
The representation and transfer of participations (or shares in an S.A.) in Spanish companies is a significant legal concept, and it differs between Limited Liability Companies (S.L.) and Public Limited Companies (S.A.).
1. The Representation of the Participations (arts. 92.2, 104, and 105 LSC)
● Participations are not securities : In a Limited Liability Company (S.L.) , participations are not considered securities and cannot be represented by titles or account annotations (i.e., they cannot be traded in secondary securities markets like stocks). This means that ownership of participations in an S.L. is documented in legal documents, such as the public deed of incorporation , the capital increase public deed , or the public document that formalizes the transfer of participations. This characteristic leads to the following consequences: ○ The transfer of participations is governed by rules for the assignment of credits and other incorporeal rights (set out in the Spanish Civil Code), rather than the rules for trading securities. ○ Participations cannot be traded on secondary securities markets, unlike shares in a public company. ● Indirect Representation : Ownership of participations in an S.L. is documented in the following: ○ Founding public deed (art. 22.1.c LSC) : This document contains the original share capital and the number of participations when the company is established.
○ Public deed of capital increase (art. 314 LSC) : This is used when the company increases its capital by issuing new participations. ○ Public document formalizing transfer (art. 106 LSC) : This document records the transfer of participations from one partner to another. ○ Deed of partition and allocation of inheritance : In the event of inheritance, the transfer of participations may also be formalized by a public deed. ● Register Book of Partners (arts. 104 and 105 LSC) : The Register Book of Partners is a mandatory document for the S.L., and it is used to keep a record of the original ownership and subsequent transfers (both voluntary and forced) of participations, as well as any establishment of real rights or encumbrances on those participations. Content of the Register Book: ○ The Register must record each transfer of participations, the identity and address of the new owner, and any real rights or encumbrances attached to those participations. ○ The Register also records the historical record of how participations have been assigned or transferred over time. ● Legalization of the Register Book: ○ The Register Book must be legalized following the regulations applicable to the mandatory books of a company, as outlined in the Commercial Code (art. 27 C. de C.) and the Law of Entrepreneurs (18.3 Entrepreneurs Law). ● Maintenance and Custody : ○ The governing body (e.g., directors of the company) is responsible for the proper maintenance and custody of the Register Book. ● Effects of Registration : ○ Legitimization : Only those who are registered in the Register Book are considered to be partners in the company. This is a presumption iuris tantum (presumption that can be rebutted). ○ Not Constitutive : The registration in the Register Book is not required for the acquisition of the status of partner or for the effectiveness of the transfer of participations or the establishment of real rights or encumbrances on them. However, it is a legitimizing effect. ○ If the Register Book is lost or destroyed : In this case, the acquisition of the status of partner or the effectiveness of the transfer of participations or the establishment of rights will be based on the original documents (e.g., founding deeds, public transfer documents), not on the Register Book.
2. Transfer of Participations:
● Rules for Transfer : The transfer of participations is governed by the rules for the assignment of incorporeal rights, and it is subject to specific procedures and formalities. The transfer needs to be formalized through a public document, and the new owner’s details should be recorded in the Register Book of Partners.
Rights Related to the Book-Register of Partners
There are several rights concerning the book-register that partners and holders of real rights or encumbrances on participations should be aware of:
- Right to Examine the Book-Register (arts. 104 and 105 LSC): ○ Partners’ Access to the Book-Register : Partners have the right to examine the book-register to verify who is listed as the current holder of participations and to ensure that their own information is accurate. This right is essential for transparency, allowing partners to ensure that the company’s records align with the actual ownership and status of participations. ○ This right may be exercised by the partners or any individuals holding real rights or encumbrances on participations. They can check to see whether their rights have been properly registered and if any transfers or changes in the ownership structure are correctly documented.
- Certificates of Registration : ○ Issuance of Certificates : Partners, or anyone holding real rights or encumbrances on the participations, are entitled to request a certificate of registration from the company. This certificate provides proof of the participations registered in their name, and also includes any real rights or encumbrances associated with those participations. ○ Informative and Evidentiary Nature : The certificates are informative and evidentiary in nature. This means they serve as a formal acknowledgment of the ownership or encumbrance of participations, but they do not, by themselves, confer or establish legal rights beyond providing evidence of the current registration status. They can be used in various legal and administrative processes to prove the legitimacy of ownership or rights over participations.
- Rectification of the Register : ○ Conditions for Rectification : The company has the right to rectify the content of the book-register in cases where errors or inaccuracies are identified. However, such corrections can only be made if the interested parties (e.g., the affected partners) have not raised objections within one month of receiving reliable notification of the company's intention to correct the record. ■ For instance, if a partner believes their participation has been inaccurately recorded or if there’s a discrepancy in the ownership information, the company must notify them of the intent to rectify the error, and the partner has one month to object to the rectification.
- Modification of Personal Data : ○ Changes in Partner Information : Partners are allowed to request changes to their personal data in the register (e.g., a change of address). These modifications must be made promptly, but the changes do not have retroactive effects against the company until the update is
reflected in the register. This means that while the company should update the information in a timely manner, it does not affect previous actions taken by the company that were based on outdated or unmodified data.
Summary of Key Points:
● The book-register of partners serves as a central record for identifying both the owners of participations and the persons to whom obligations may be attributed. ● Partners have active legitimacy to exercise their rights only if they are registered in the book-register, and they also have passive legitimacy for fulfilling obligations to the company. ● Partners have the right to examine the book-register to ensure accurate records, and they can request certificates of registration to confirm their ownership or rights. ● The company can rectify errors in the register, but only if interested parties have not objected within a specified period (one month). ● Partners may request modifications to their personal data , but these changes only take effect after being updated in the register.
2. The Representation of Shares
The representation of shares refers to how ownership of shares in a company is documented and evidenced. In the context of public limited companies (S.A.) , there are two main systems for representing shares: physical titles and account annotations. These systems ensure that the shareholder's ownership is recorded and can be transferred according to legal procedures. Below is a detailed explanation of these systems and the legal considerations surrounding them.
2.1. General Considerations
Concept of Share Representation
- Physical Titles : ○ When shares are represented by physical titles , the share is documented on a printed certificate. This certificate is delivered to the shareholder, providing them with tangible proof of their ownership. ○ This system is commonly used when shares are in paper form and are not yet recorded in a computerized register.
- Account Annotations : ○ In this system, shares are represented by an accounting entry in a computer register. This is a digital record rather than a physical certificate. The share ownership is tracked electronically in a centralized registry.
Changing the Representation System
- Reversibility : ○ Both the physical title system and the account annotation system are reversible , meaning a company can switch from one representation system to the other. However, specific legal steps must be followed, and certain conditions must be met: ○ Reversion to Account Annotations : ■ The company can revert to the account annotation system as shareholders consent to the change. This process can occur gradually as shareholders provide their agreement (see art. 4 RD 878/2015 ). ○ Reversion to Physical Titles : ■ The company may also revert to the physical title system , but this requires prior authorization from the Comisión Nacional del Mercado de Valores (CNMV) , Spain's securities market regulatory body (see art. 5 RD 878/2015 ).
- Reversion Process : ○ The reversion to the account annotation system is generally more flexible and can be done without the need for regulatory approval as long as shareholders approve the change. ○ On the other hand, reverting to physical titles requires CNMV approval to ensure that the transition complies with securities market regulations.
Shares as Mobiliary Values
- Considered Mobiliary Values : ○ Shares are always considered mobiliary values (movable securities), whether they are represented by physical titles or by account annotations. This categorization reflects the legal treatment of shares as financial assets that can be traded or transferred.
- Exceptions to Mobiliary Value Status : ○ There are certain cases where shares do not qualify as mobiliary values : ■ No physical titles have been printed or delivered (for example, when only provisional receipts or certificates are given). ■ No account annotations have been made in the appropriate register, which can occur when the shares have not been fully recorded in the official register. ○ In such situations, the legitimacy of the shareholder (the principle that the registered owner is the legitimate shareholder) does not apply. Essentially, the transferability and ownership rights associated with the shares may not be recognized if these registration steps have not been completed.
2.2. The Representation of Shares through Physical Certificates
The representation of shares through physical certificates is one of the traditional methods of documenting ownership in a company. These certificates are printed and delivered to the shareholder, who then holds a tangible proof of their ownership. This system is governed by various legal provisions in Spain, particularly in the Ley de Sociedades de Capital (LSC) , or the Companies Act.
Below is a detailed explanation of the legal framework, types, rights, and procedures concerning shares represented by physical certificates.
Nature of Physical Share Representation
- Declarative Nature : ○ The representation of shares through physical certificates is declarative , meaning it acknowledges the status of the shareholder but does not constitute the shareholder's rights. In other words, merely possessing a certificate does not automatically give someone the right to claim the share; it just serves as evidence of that status. ○ The LSC allows situations where shares may not have physical certificates, yet the shareholder still retains full rights (e.g., voting, dividends). In these cases, the absence of physical certificates does not mean the partner's rights are nonexistent.
Types of Physical Certificates
- Registered Certificates : ○ The registered certificate specifies the identity of the shareholder on the certificate itself. This means that the person whose name is printed on the certificate is the official holder of the share. ○ This type of certificate allows the company to know the exact identity of its shareholders, and it is often used in situations where the company wants to track ownership more closely.
- Bearer Certificates : ○ With bearer certificates , the holder of the certificate at any given time is considered the owner of the shares. There is no need for the company's registry to reflect the holder’s identity; it only requires the certificate to be physically possessed by the shareholder. ○ This system is more flexible because ownership can be transferred simply by handing over the certificate to another person. However, it lacks the traceability of registered certificates.
Multiple Titles
- Definition : ○ Multiple titles can represent more than one share as long as all shares have the same nominal value and confer the same rights. These multiple titles allow for the consolidation of shares under a single certificate. ○ However, registered shares and bearer shares cannot be grouped in the same multiple title. They must be issued separately according to the form of representation chosen.
- Regulatory Framework : ○ The issue of multiple titles must be explicitly provided for in the company's bylaws (art. 23.d) LSC and art. 122.2 RRM ). ○ The majority doctrine in corporate law considers that the existence of a multiple title does not negate the shareholder's right to receive individual titles corresponding to their shares, if requested.
Shareholder’s Right to Receive Titles
- Right to Receive Physical Certificates : ○ Shareholders have the right to receive individual and definitive physical certificates representing the shares they own, free of charge. If they have not already been issued, shareholders can request the company to print and deliver the titles to them.
- Exceptions : ○ Issuance Delay : The company cannot issue the physical certificates until the deed of incorporation or capital increase has been registered with the Commercial Registry (Registro Mercantil). This ensures that the company’s legal existence and capital status are officially recognized before shares are issued.
Requirements for Physical Certificates (Art. 114 LSC)
- Numbering and Series : ○ The physical certificates must be numbered consecutively to avoid any confusion or duplicate issuance. ○ The numbering may be organized either generally , by classes of shares, or by series , depending on the company’s structure and the type of shares issued.
- Stub Books :
○ Certificates must be issued in stub books , meaning the company keeps a record of each certificate issued and maintains an organized system for tracking the physical certificates.
- Registry Entry : ○ A note should be made in the margin of the company’s official registry entry (Registro Mercantil), indicating that the physical certificates have been printed and delivered , or if applicable, deposited in an authorized entity. ○ This entry must be made based on a certification issued by the company’s governing body, listing all the titles that have been put into circulation (art. 122. RRM).
Minimum Mentions on Physical Certificates
- Corporate Information : ○ The certificate must include the company's corporate name , registered office , identification data , registration identification , and tax identification number.
- Share Information : ○ The certificate must specify the number , series , class , nominal value , the type of representation (whether registered or bearer), and the degree of payment (fully paid, partially paid, etc.).
- Special Legal Regime : ○ If the share is privileged (i.e., it grants special rights such as higher dividends or priority in liquidation), this must be clearly indicated on the certificate. ○ Any restrictions on the transferability of shares, such as a right of first refusal or preemption right, must also be noted.
The Representation of Shares through Physical Titles (Arts. 92.1, 113 to 117, and 122 LSC)
The representation of shares through physical certificates follows a detailed regulatory framework in Spain, primarily governed by the Ley de Sociedades de Capital (LSC) , which ensures clarity on issues such as signing procedures , legitimization of shareholders , and issuance of provisional certificates. Below is a breakdown of key aspects of this process:
Signature of the Administrators (Art. 114 LSC)
- Signature Requirement : ○ The physical titles (share certificates) must be signed by one or more of the company’s administrators. ○ Signature Mode :
○ Common Use : Provisional receipts are frequently used for partially paid shares that will eventually be issued as bearer shares once they are fully paid. Since unpaid shares must be nominative (registered), provisional receipts help manage these shares until the final titles are ready.
- Duration : ○ While provisional receipts are intended to be temporary , the LSC does not set a specific time limit on their validity. ○ Shareholders have the right to demand the issuance and delivery of definitive titles from the company at any time (art. 113.2 LSC).
Requirements and Legal Nature of Provisional Receipts
- Form and Characteristics : ○ Provisional receipts must be nominative , like the definitive titles, and they must be: ■ Issued in stub books and numbered consecutively. ■ Contain the same minimum mentions as definitive titles (e.g., company name, share details). ■ Can incorporate multiple shares (multiple receipts).
- Legal Nature : ○ Provisional receipts are considered securities that incorporate the shares they represent. They grant the shareholder direct legitimization against the company to exercise their rights, similar to definitive certificates. ○ Transferability : According to the majority doctrine, provisional receipts are not transferable by endorsement and can only be transferred under the standard transfer rules for shares.
- Record in the Register : ○ The acquisition and transfer of provisional receipts must be recorded in the book-register of nominative shares.
- Legitimization and Transfer : ○ Provisional receipts legitimize the shareholder against the company, granting them the right to exercise their shareholder rights. ○ They are not transferable by endorsement , unlike bearer certificates, and can only be transferred through ordinary transfer rules.
Certificates of Registration
- Form : ○ A certificate of registration is a nominative certificate that proves a person’s shareholder status in the company. ○ It must include the following:
■ Number and series of the shares. ■ The shareholder’s name and registration in the book-register. ■ The number of shares owned by the shareholder.
- Legal Nature : ○ Certificates of registration are official documents that certify the shareholder’s ownership of shares. They serve as proof of the shareholder's legal rights to the shares, even if the definitive physical titles have not yet been issued.
- Issuance : ○ These certificates can only be issued for nominative shares and are typically used when definitive physical titles or receipts are unavailable.
The Representation of Shares through Physical Titles (Arts. 92.1, 113 to 117, and 122 LSC)
The Spanish Ley de Sociedades de Capital (LSC) provides a detailed legal framework for the representation of shares through physical titles, including the use of registration certificates , the maintenance of the register of shares , and the substitution of titles under various circumstances. Below is an outline of the relevant provisions and procedures regarding these aspects:
Provisional Titles: Certificates of Registration
- Form of the Registration Certificate : ○ The LSC does not specifically define formal requirements for the registration certificate. ○ Legal Nature : The majority doctrine holds that registration certificates are not securities. They are merely documentary proof of the shareholder's registration in the book-register of nominative shares.
- Indirect Legitimization : ○ The registration certificate serves as indirect legitimization of the shareholder’s rights, confirming their registration in the register of registered shares.
- Transferability : ○ The issuance of a registration certificate does not affect the transfer regime of the shares. ○ The transfer of shares represented by these certificates follows the rules for the assignment of credits and incorporeal rights.
The Register of Registered Shares (Art. 116 LSC)
- Mandatory Maintenance : ○ The maintenance of a register is mandatory for an SA (Sociedad Anónima) when:
