Business Law

CASE 1: Legal Tools

Spanish Legislation
Legislation: set of laws proposed by a country’s government and then approved by the parliament. They
are created with a specific purpose and the applied in a specific territory.
 Bill: set of laws waiting for approval.
1. Constitution: common principles. (art. 38)
a) Freedom of enterprise: freedom of competition.
i. Laws and conditions should all be the same or similar if we want freedom.
ii. Single market – same rules
b) Market/private property/private autonomy
i. Private property: companies’ right of owning profits.
ii. Private autonomy: right of an individual older that 18 y/o to exercise commercial activity.
c) Association right: right to join other people/get together to create a business.
2. Laws (approved by the Spanish Parliament)
a) Organic law: ideas that will apply to the whole region. Implement fundamental rights.
i. Important right of the Constitution. Require absolute majority of the Congress.
ii. Equal statute.
b) Ordinary laws: different in each community. Do not relate to the most important topics.
i. Develops main ideas of the organic law. -> regulations.
ii. Require simple majority of the Congress and Senate.
3. National regulation: apply to each different institution.
i. Legislation of lower status.
ii. Like bylaws.
Catalonian Legislation
1. Estatut d’Autonomia (organic law)
2. Catalonian laws. (Parliament)
3. Catalonian regulations.

European Union Legislation

1. Primary legislation
● European Union Treaties
i. Treaties are not voted by citizens and should respect all national constitutions.
ii. Binding agreement between EU member countries.
2. Secondary legislation: details not included in treaties.
i. Ex: Trademark protection is not included in the treaties.
● European Union Directives: helps the states publish similar laws.
i. Has the power to tell the states to change the rules.
ii. Requires members states to accomplish a particular set of goals without dictating the means
to do it.
1. Each member state decides how to ensure compliance through national laws.
● European Union regulations: apply the same legislations in all countries from the EU.
i. directly applicable and binding in all member countries 
● European Union decisions: apply to particular situations/cases. (Comission)

Both are laws (2nd level), there is not a European Constitution.

 European Union Treaties: must be followed the moment a country joins the UE.
 International Treaties: must be accepted by every government involved.
Purpose of Legislation: to be treated equally. If one is not treated equally, it’s not free to compete fairly
against the others.
Division of powers
1. Legislative powers: approve laws
a) National level: Parliament, people voted by the citizens to represent them.
i. Spanish Congress of Deputies
ii. Spanish Senate
b) EU level: European Union Council/European Parliament approve.
i. Commission propositions
2. Judicial power: interpret and apply laws. Courts of Justice.
a) National level: national and EU laws, Ordinary Courts of Justice.
b) EU level: Commission and EU Courts of Justice. .
3. Executive power: makes sure laws are respected inside the territories of each country.
a) National level: government, city council.
b) EU level: EU Commission.

1. Commission: protects the interests of the EU. Particular cases.

2. Council: protects the interests of the states of the European Union.
3. Parliament: protects the interest of the citizens.

Judicial power
1. National level
a) First instance: first one in resolving a case and the resolution can be appealed.
b) Provincial audience: highest judicial form in the province. Limited to civil or criminal topics.
c) Supreme Court: judicial body of the territory. Composed by its president, the chambre of
presidents and the Magistrates and some resolutions form the provincial audiences or the
superior courts of justice can be applied to this court.
i. All of them have to apply the national and EU legislations.
2. European Union
a) European Union Commission: group of experts from different countries that know the
different interests of the European Union citizens.
i. Propose particular legislations/regulations for the Parliament or the Council to approve.
(Sometimes it is given the power to approve through power delegation).
b) Court of Justice of the European Union.
 CASE 2A: Business Persons

Business Person
● Business person: any physical person can be one. The first thing a business person does is
study the market and discover a need to cover. Invests money to create a legal identity to do a
commercial activity.
● Legal business person: aggregate of two or more persons to carry out a business in common.
As a firm is authorized by law with duties and rights, recognized as a legal authority having a
distinct legal personality.
Legal business person: the one who gets to manage the rights and duties.
How is the business activity done? Through an economic organization (= company, assets of the
company)

DIFFERENCE BETWEEN BUSINESS PERSON AND COMPANY

Ex: Amancio Ortega and Inditex S.A -> Amancio Ortega had the idea and has most of the shares, but he
is not the business person, since he is not in charge of all the rights and duties. The business person is
Inditex S.A, who takes all the risk. Amancio Ortega is part of the economic organization.

Code of Commerce: According to the Code of Commerce, the Business Person is someone who:
 Has private autonomy: the ability to contract, decide, start or finish a company.
 Realizes business activity often.
 Generates profits through the commercial activity.
 Is registered in the commercial register. Same register for all different business persons.
 Deed of incorporation: initial contract that has to be presented in front of the public notary to start the
company.
 Mercantile register: the business person must publish everything.
ú Distinguish the company: the business person cannot do any more commercial activity.

Legal person: his/her purpose is not making profits.

 Different types of business persons: (Code of Commerce and corporate Enterprises Act)
● Personalist: the most important element is the person, that person must make decisions, take
risks, and generate benefits.
ú Majority of the capital belongs to general partners (personalists investors)
● Capitalists: (Corporate Enterprises Act)
ú Most of the capital is owned by capitalist investors who invest the money and risk losing it
but don’t have the obligation to make decisions.

Types of partnerships
 General partnership: the partners are personalists. Must make decisions.
ú General partner: invests the capital and 100% of it belongs to him/her.
ú Worker partner (≠ worker): doesn’t invest but gets profits. They offer they skills as a form
of ‘investment’. Only gets profits and gets to participate in the decision process for his/her
skills.
 All partners are involved in the business. Both worker and genera partners face
unlimited partnership.
 Limited partnership: the partners are personalists. Don’t have the right to decide.
ú Personalists: general partner, own most of the capital.
ú Limited partner: - capitalists partner, only invests, doesn’t run the business.
 Can also have a worker partner.
______________________________________________________________________________
 Limited share partnership: (CAPITALIST)
All have the right to ú Personalist partners: general partners. They own the minority of capital. Follow the Code
participate in the
meetings of Commerce. It is mandatory to participate in the decision process.
 Full liability.
 Direct the operations.
 Can apply to become capitalist partners. – changes to Joint Stock company.
ú Capitalist partners = shareholders. Own majority of the capital. It is not mandatory to take
decisions.
 Limited liabilities.
 Passive investors.
ú Capitalists company under the Corporate Enterprises Act. The general partners are under
the Code of Commerce, but the company is still capitalist.
 Decisions are made by the majority of the capital ≠ the one that has the most amount.
The majority of the capital present in each meeting.
  There’s always a minimum capital to invest required by the law. If the company
doesn’t have this amount, it must change the type of company.
ú The capital is divided by shares.
ú All partners get profits and may have losses.
 Joint stock company: (CAP) SA most common type of capitalist company.
ú Difference with limited share partnership: there are no general partners. There are only
capitalist investors.
ú Minimum capital: 60.000€
ú All capital belongs to the shareholders (capitalists)
ú Decisions made by majority of capital.
ú Limited liabilities.
ú The company is managed on behalf of the shareholders by a board of directors, elected at
an annual general meeting. Individual shareholders can sometimes stand for directorships
within the company if a vacancy occurs, but that is uncommon.
 Limited Liability Company: (CAP) SL
ú The capital is divided in stakes – owners of the capital: stakeholders.
ú Minimum capital: 3.000€.
ú Limited liabilities.
ú The capital will choose the Board of Directors.
 One investor will be the director of the company as the same time as an investor.
 Investors face limited liability.
 As the director, he may face unlimited liabilities.
 Each partner is not responsible for another’s partner’s misconduct.
ú Restriction of transmission: The permission of all investors is needed in order to add a
new investor.
 General Partnership Limited Partnership

Formed by two or more persons who have Does not have enough capital so it needs a
unlimited responsability.  capitalist investor. 
Created by an agreement with no minimum General partner: owns the majority of the
capital.  capital and is in charge of decision making. 
General Partner: invests money, gets profits Limited partner: owns the minority of the
and faces losses and has the right to decide capital and no right to decide but has
Worker partner: doesn't invest but may face limited liabilities. 
losses and can get profits. 

Limited Share Partnership Joint Stock Company Limited Liability Company

Capital is divided in shares and All capital belongs to investors.  All partners are capitalists
publicly open to the stock The minimum capital to create (stakeholders)
market.  the company is 60.000.  Restriction of stake transfer. 
Capital and ownership is divided Has a general meeting and a Worker partner as adirector of
between: Board of Directors.  the company or getting a salary. 
Shareholders: have limited
liability and invest capital. 
One or more parnters: full
liability and direct the operations
of the company. 

Situations where the Business Person needs to be controlled

Abuse of Juridical Person:
 Creating a business that doesn’t cover a need in order to avoid paying more taxes.
 Trying to get the law applied in different conditions – not fair.
Viel Theory: considers a business company as an abuse. Considers the business person was not created,
because it doesn’t follow the conditions.
 Declares the company null. Applied by a Court of Justice.
Criminal liabilities:
Possibility of condemning the company because of the crimes committed by the administrators or
directors. 
Directors and legal persons have criminal liabilities. 
Capitalist Business Persons
Legislation: Corporate Enterprises Act.
Requirements of the Constitution:
● Capital.
● Name: social name of the company.
● Nationality: defined by the main office. Specific address.
- Tells which laws will apply.
● Deed of Incorporation: initial agreement of the company. (Escritura pública)
● Bylaw: estatutos. The company’s internal regulation.
● Commercial Register.
Single member company: takes decision also based on the majority of capital. The majority of capital
rule must always be respected.
Corporate groups (company groups): a business person controls the capital of other business persons
that act together even though they are registered separately.
Nullity: if a business person doesn’t follow the law, he/she falls into nullity. Must face unlimited
liabilities.
Social contributions: amount of capital that one invests in the business person. Capital can be cash or
non-cash, something that has economical value.
Difference between shares and stakes: shares (rights) can be transferred freely while stakes can’t.
Article 92: Shares as Transferable Securities
Shares must be represented through certificates of title or book entries. In both cases they must be
treated as transferable securities.
In LLCs, it is not mandatory for stakes to be represented as certificates or book entries. They
must not be called shares and must not be seen as securities, and therefore cannot be traded.
Security: financial instrument or asset that can be traded.
Partners and shareholders rights: vote, participate in meetings, get profits, ….
1. In the case of liquidation, to be participant of the distribution of the company’s earnings and
equity.
2. To obtain new stakes or endorse new shares or convertible bonds under preferable conditions.
3. To attend to general meetings and vote, as well as debate the agreements made.
4. To be properly informed.

Transmission of shares/stakes: shares can be sold and bought in the share market.
If one wants to become a stakeholder in an LLC, one must be authorized by the majority of the
company’s capital. Stakes can’t be bought in the stock market.

CASE 2B: Governing Bodies

Board of Directors
Capitalist companies/BP: (Decisions are made by majority of capital)
● General meeting: the majority of capital acts.
● Board of Directors: second governing body of the Business Person. Directors chosen by the
general meeting.
● Delegation of power: the capital is represented by someone else who will participate in
the voting. Can be someone external from the company.
● Director: the one who runs the company in between the general and ordinary meeting,
since the capital is not always together. Is not necessarily the business person. Has
unlimited liability.
● In capitalist type of companies, it must be stated in the by-laws the number of directors
there are.
● Quorum of constitution: number of directors.
Requirements to join the Board of Directors: (subjective requirements)
● Someone who is in conflict of interest with the business person cannot join the Board of Directors.

Director’s duties:
● Must be diligent: must respect the interests of the business person. Must know the law and cannot act
against any law or by-law.
a) Must face unlimited liabilities if the director acts against the interest of the company. The
directors can lose his/her personal assets, and the shareholders must only worry about the capital
invested.
General Meeting
Types of general meeting:

Ordinary General Extraordinary General

First General Metting
Meeting Meeting
Must be done after the Rest of meetings. Must be held under the
register of the company. General things are conditions of the
By-laws are not decided, decison are ordinary general
approved yet. alway made by the meeting.
Presentation of the first majority of capital Held in urgent situation
version of the by-laws present. when the topic can't be
The general financial approved in the ordinary
report must be general meeting.
presented. Any other meeting not
Are held every financial stated in the article 164.
year. (CEA)
Is called by the Board of
Directors.

In order to hold a general meeting, the first thing to know is where and when it is going to be held. All
investors/shareholders must be informed through a notice (art. 172). If it is not sent, the decision is not
valid.
The notice must include:
● Place: will be in the same city the registered office is in, if it is not specified in the by-laws, this rule
must be followed. If the office address is changed, must go to the Mercantile Registry and change the
by-laws.
● Date.
● Agenda points
● Calls
● First call: at least 25% of the capital represented or present is needed. (quorum)
● Second call: less percentage than the first call.
a) General rule – simple majority
b) Stronger majority. Bigger amount needed
i. Which type of majority is chosen depends on the topic.
b) Quorum of constitution of general meeting: % of capital present or represented. Capital needed to
start the meeting. The by-laws determine the quorum of constitution of the general meeting and the
quorum of constitution of the Board of Directors (number of directors)
c) The % of capital needed in each call must be stated in the by-laws.

Right of shareholders: attendance, to be informed, to vote… some investors can have shares but not
voting rights.
Minutes: all decisions made must be recorded. Decisions of General meeting. Change the by-laws.
Used by directors to prove that all decisions were made according to the law, the by-laws and the interests
of the company.
Decision points of agenda:
● Document with al decisions made and approved in the general meeting.
● Must be sent to all investors.
● Directors must follow what the decision of general meeting says. (Delegation of power).
● The president and secretary of the general meeting must sign.
 CASE 2C: Corporations, financial concepts and other questions

Financial Statements
● The company’s directors shall issue the financial statements, the management report and the
proposed distribution of earnings.
The financial statements shall comprise the balance sheet, income statement, statement of the changes in
the net worth for the financial year, cash flow statement and the respective notes.
Must be approved by the Board of Directors and the General Meeting.
● The Board only has the power to purpose, but it must be approved by the General Meeting.
● All changes in the by-laws must be approved by the General Meeting.

Auditors
External person from the company who has to control the financial situation of the company. Must be
appointed in the General Meeting and the Board of Directors.
Must verify whether the financial statements presented are true and fair. Must present a report in the
General Meeting. (Auditor’s report)

Causes for partners or shareholder to exit and exclusion

1. Causes according to the Corporate Enterprises Act (art. 346)
Partners or shareholders who are not voting in favor of the respective decision can be entitled to exit the
company in any of the following circumstances:
a) Supersession or amendment of the corporate purpose.
b) Extension of company term.
c) Company reactivation.
d) Creation, amendment or early cancellation of ancillary commitments, unless otherwise is provided in
the by-laws.
In LLcs, partners that do not vote in favor if amendment of the arrangements for the transfer of stakes can
also leave the company.

2. Causes in the by-laws (art. 347)

The by-laws can establish other causes for exit.
Legal Financial Concepts
Art 273: Appropriation of earnings
Indicates that the Board of Directors purpose to distribute the earning between the investors, the General
Meeting must approve the decision. It can’t only be decided by the Board of Directors.
Equity should not be less than the social capital after the distribution of the earnings.
● Social capital: capital initially invested in the formation of the company.
Good economic situation: equity > social capital

Types of reserves that a capitalist company has:

● Restricted reserves: the general meeting decides to invest x% of the profits for a particular project.
It cannot be used for any other activity that is not that one.
● Unrestricted reserves: can be used for different purposes. Approved by the General Meeting.
● Legal reserves (art. 274): they are mandatory and established by the law. Particular % of the capital
every year that is invested as a warranty to pay creditors. If there are no legal reserves, the company
should be dissolved. The legal reserve may not be used to offset losses unless it exceeds twenty per
cent of the capital and no other sufficient reserves are available for such purpose.
a) Minimum: 10% of the registered social capital.
b) Maximum: 20% of the social capital. Must be reached in the last year.

● Distributable reserves: amount that the General Meeting can distribute.

Capital reduction
Mandatory Reduction (Art. 327): If the capital is decreased, the type of company has to change.
It is mandatory to reduce the capital when Equity is less than the 2/3 of Social Capital and 1 financial year
has finished.

Capital increase
Maximum amount that can be increased is the 10% of the social capital.
After increasing the capital, the legal reserves should be the 10% of the new capital

Dissolution
A company must be dissolved when:
1. Losses = equity < ½ Capital
2. Non-voting shares > 50% capital
Majority of capital will not be able to vote because it has no right to vote.

Causes of Dissolution
● Interruption of the activity.
● Termination of the mission that constitutes its corporate purpose.
● The achievement of the corporate purpose is manifestly impossible.
● Due to governing body standstill, rendering it impossible to conduct business.
● Due to losses that reduce its equity to an amount lower than one half of the share capital, except
where the capital is increased or decreased as required and application for insolvency protection
is not warranted.
● Due to a capital reduction to a sum below the legal minimum, except as in compliance with a
legal provision.
● Because the par value of non-voting stakes or shares exceed one half of the paid-up capital and
the due proportion is not recovering within two years.

Liquidation process: once the General Meeting agreed on dissolving the company, they have to start the
liquidation process. This process is done by a specific person called liquidators, who are appointed in the
General Meeting.
Extinction of the business person: the company has to ask the Mercantile Register to publish that the
business person has been extinct.
 CASE 3: Intellectual Property I

Registering the product in the Mercantile register is not enough protection for the company’s product.
● Not all products need to be protected.
● There is a reputation to be protected.

In Spanish law, intellectual property refers to copyright and industrial property rights to creations with
applications in industry.

Social activity: produces reputation in the market that needs to be protected according to the intellectual
property.
Business person: must protect the reputation and the product of the business person.

Intellectual property types

1. Intellectual: protects ideas or mind creations. (copyrights)
2. Industrial: mind creations that apply to the industry.
a) Protects the activity of the company: commercial name.
b) Protects the product
● Invention
ú Patents
ú Utility models
● Trademark: sign that distinguishes the product in the market.
● External appearance: design

Offices:
ú Registro de la Propiedad Intelectual.
ú World Intellectual Property Office (WIPO)
Intellectual Property: Copyrights
Legal term used to describe the rights that creators have over literary and artistic works. There are two
types of rights under copyright:
● Moral rights: protect the non-economic interests of the author.
● Economical rights: allow the owner to get a financial reward from the use of his work by others.
National protection in Spanish territory, according to the Spanish IP Law in the Spanish register of
intellectual property. (There is no protection in the EU)
● Copyright protection extends only to expressions and not to ideas. They may also not be available for
logos, titles, slogans… depending on whether they have enough authorship.

Berne Convention: in most countries, copyright protection is obtained automatically without the need of
registration. But they still have a system to allow the voluntary registration of works.
● The WIPO does not offer a copyright registration system or a data base.

Industrial Property

Invention

Patent Minor Inventions

Invention new worldwide Must be new in the territory. (Spain)
Stronger and longer protection. (20 years) Less expensive.
Takes a lot of time to obtain one, since National protection with the national patent
experts must study the area and determine if law.
the invention is new.
National and international protection.
Doesn't keep others from producing similar
products, but those can't be exactly the same.

Once the patent utility model is obtained in Spain, the company can direct to the WIPO-PCT and apply
for an international country and recognition of the IP.
WIPO - PCT: International: Patent System, Patent Cooperation Treaty.
● Assists applicants in seeking patent protection. Internationally for new inventions.
● Helps patent offices with patent granting decisions.
● Facilitates public access to a wealth and technical information.
● By filing one international patent application under the PCT, applicants can simultaneously seek
protection in 148 countries in the world.
 ● Must have national or EU protection.

Ornamentation
Protects the external appearance of the product.
● Must be new worldwide.
● Exclusive right starts with registration.
Two types of protection:
1. National protection: Spanish Desgin Law.
2. European Union Protection. (EU Regulation of Design)

WIPO - HAGUE: International Design System.

● Provides practical business solution for registering up to 100 designs in over 64 territories trough
filing one single international application.

Signs Used in the Market

 Protection of the activity of the company: commercial name
ú Protects the activity of the Business Person and its reputation in front of competitors. (Ex. Zara)
ú Must be registered in the OEPM (Oficina Española de Patentes y Marcas) and follows the
trademark law.
ú Gives national protection.
ú Trademark Law: distinctive sign, but not a trademark.
ú The social name on the Mercantile Registry may be different. The social name is not an
intellectual property right (Ex. Inditex)
 Protection of the product: trademark.
ú The sign is on the product.
ú A business person may have different trademarks.
ú Trademark only gives protection in the specific market where the registration has been accepted.
It’s not a general protection.
ú It is important to be used.
ú Two protections:
 Spanish territory: OEPM (Spanish Trademark Law)
 European Union: EUIPO (EU regulation of trademarks)
Trademark Protection
Trademark: sign capable of distinguishing the goods or services of one enterprise from those of other
enterprises. Protected by intellectual property rights.
On a national level, trademark protection can be obtained through registration. (OEPM, Spanish
Trademark Law).
On an international level there are two options:
1. File a trademark application with the trademark office in each country where we are seeking for
protection.
2. WIPO’s Madrid system: one stop solution for registering and managing marks worldwide.
a) System is administered by the International Bureau of WIPO.

National Protection
Two different registers to protect intellectual property:
1. Intellectual property register: protects copyright.
(Intellectual property law)
2. Registration of trademarks. Oficina Española de Patentes
y Marcas
a) Spanish trademark law.
b) Patent law.
c) Design law.

European Union Protection

● European Union Regulation of Trademarks.
● European Regulation of Design.
There is no protection for patents in the EU.
WIPO - Madrid: one stop solution for registering and managing marks worldwide.
● Administered by the International Bureau of WIPO.
● System of international registration of marks is governed by two treaties:
 Madrid Agreement Concerning the International Registration of Marks (1891)
 Protocol Relating to the Madrid Agreement. (+ common regulations under the agreement)
International Protection
International protection of intellectual property allows:
● To get the protection in other countries of the world thanks to international agreements.
It is required to have the first national protection or the EU protection.
Trough the WIPO or EPO, only national protection is obtained.

Two different international institutions to protect intellectual property:

1. World Intellectual Property Office.
a) International protection of copyrights, trademark, patent and design.
2. European Patent Office
a) International protection of patents.
WIPO - Lisbon: International System of Appellations of Origin
● Offers means of obtaining protection for an appellation of origin in the contracting parties to the
Lisbon Agreement through a single registration.
● Registrations are published in the official bulletin and can be searched through the Lisbon
Express database.
Conflicts
Courts of Justice National level:
● EU trademarks and designs can be enforceable in any member states.
● National trademarks and designs.

WIPO - Arbitration
Another way to solve IP disputes outside of the courts. Faster and more flexible.
Made in a single neutral forum, that saves time and money.
 Mediation: impartial mediator helps two or more parties in dispute reach an agreement.
 Arbitration: parties agree to submit their dispute to an arbitrator who makes a final binding decision.
 Expert determination: parties agree to submit a specific issue to one or more experts who make a
determination.
 CASE 4: Advertisement

What is Advertising?
Advertisements are designed to convince people to buy a product or service. People see every day
countless varieties of advertising: magazines ads, posters, television commercial, internet commercials,..
Its goal is to drive customer behavior in a particular way in regard to a service or product.

Purpose of advertisement: inform, convince people to buy a product.

● Spanish Law: Any form of communication done by a natural or juridical person, public or private, in
the exercise of a trade.

Types of Illegal Advertisement

1. Advertisement against constitutional rights or person dignity
Advertisements that violate the dignity of the person or violate the values and rights recognized in the
Constitution.
Spanish Advertisement Law: art 3. (articles 14, 18 and 20)

2. Advertising for minors that encourages them to buy a good or service

Exploited their inexperience or credulity. The characteristics of the product should not be misled.
Spanish Advertisement Law: art 3.

3. Subliminal advertisement 
Through stimulus production techniques can act on the target public without being consciously perceived.
Spanish Advertisement Law: art 3-4.

4. Advertisement against the regulation of particular products or services 

Medicine and alcoholic drugs, for instance.
Spanish Advertisement Law: art 3.

5. Misleading advertising, unfair advertising and aggressive advertising.

All these are acts of unfair competition.
Unfair Competition Law: articles 5-9.
 6. Comparative advertisement.
If the advertiser compares objective facts, it is legal, because it is informing the consumer. But, if it
compares subjective ideas it is illegal.
Unfair Competition Law: article 10.

7. Product placement
Form of advertising in which products or services with trademarks are featured in a production that
targets a large audience. It is not legal if it does not inform the consumer that it’s an advertisement.
Law 7/2010

Misleading Advertisement
Any advertisement capable of…
● Deceiving the persons to whom it is addressed.
● Distorting the economic behavior of the perceiver.
● Harming the interests of the competitors as a consequence.
Factors to determine whether an advertisement is misleading.
Characteristics of the goods or services concerned.
1. Price.
2. Conditions of delivery of the goods or provisions of the services involved.
3. Nature, attributes and rights of the advertiser.

Comparative Advertisement
Regulation lays down the conditions under which comparative advertising is permitted and requires
traders to make sure that the advertisements are…
● Not misleading.
● Compare “like with like” (goods and services that cover the same needs)
● Compares objectively important features of the products or services.
● Does not discredit other companies’ trademarks.
● Does not create confusion among traders.

Subliminal Advertisement
Subliminal message: signal or message that is designed to pass below the normal limits of perception.
The message is perceived unconsciously.
It is not allowed in audiovisual media.
Advertisement of Similar Products
Some products need special protection because they…
a) May affect public health.
b) May affect the children.
Those products can be tobacco, alcohol, medicines…
EU Directive 2010/13

The advertising must…

● Be aimed at minors or depict minors drinking.
● Not link alcohol with enhanced physical, sexual or social performance.
● Not encourage immoderate consumption.

Surreptitious Advertising
To disseminate information or opinions or display product brands through the media in news program,
movies or other programs without a prior contract of an advertising space.
● Product placement will be permitted as long as it meets certain criteria.
● Surreptitious advertising will still be prohibited.

Advertisement vs. Constitution

Some advertisements are again some constitutional rights such as racism and sex discrimination.
Regulation

National Regulation
Each country has laws that regulate the advertisement in general along with some specific laws for
particular products.
Spanish regulations:
● Ley 34/1988 de 11 de noviembre, General de Publicidad. (SAL)
● Ley 3/1991 de 10 enero, Competencia Desleal.
● Ley 7/2010 de 31 de marzo, Comunicación Audiovisual
● Ley 29/2009 de 30 diciembre, por la que se modifica el régimen legal de la competencia desleal y de
la publicidad para la mejora de la protección de los consumidores y usuarios.

Spanish Legislation that can be Applied to a Case of Advertisement

● Spanish constitution 1978: advertisements against constitutional rights.

● Spanish Advertisement Law (34/1988, 11 November): advertisement against constitutional rights,
for minors, subliminal advertisement and special products.
● Unfair Competition Law (17/2001, 10 January): misleading advertising, unfair advertising,
aggressive advertising, comparative advertisement.
● Trademark Law (17/2001, 7 December): cannot use someone else’s trademark or Commercial
Name in an advertisement, unless it is compared with objective facts.
● Design Law (20/2003, 7 July): cannot use someone else’s design in an advertisement.
● Product Placement (7/2010, 31 March) General de la Comunicación Audiovisual.
● Special regulation for specific products.
● Intellectual Property Law (Real Decreto Legislativo 1/1996, 12 April): can be applied to music,
pictures…used in the advertisement.

EU Regulations
Communication of
Directive 1989/552, Directive 2003/33, Directive 2006/114, Directive 2005/29,
Directive 2010/13 EU Commission
October 3 May 26 December 12 May 11
2012, November 17
Regulates audivisual Advertising and Coordination of laws Misleading Unfair commercial Protects businesses
media services. sponsorship of and regulations comparative practices. against misleading
Subliminal tobacco products. concerning the advertising. marketing practices
advertisement. provision of Lays down conditions and ensures effective
audivisual media. under which enforcement.
comparative
advertising is
permitted.
Advertisement Contracts (SAL)
Under the General Law of Advertisement, contracts can be created…
● To broadcast the advertisement in the media.
● To create the advertisement to promote the product.
● For a sponsorship contract.
ú Promotion of non-profit activities.
ú Indirect promotion of the product.
Advantages: promotes the reputation of the company, cheaper than direct promotion.

Who participates in the Advertising?

● Advertiser: firms or individuals attempting to find customers for their products and services.
● Advertising agency: independent service organization that contracts with advertisers to manage
their advertising.
● Supplier of advertising time or space: communications media representative or the communication
medium itself.

Advertising Agency Contract

Agreement drawn between a supplier of advertising time or space (communications media representative)
and an advertiser, who specifies in detail the content, cost, and placement of the advertising and binds
both parties to the stated terms.

Contract that governs the legal relationship between a sponsor and those entities that offer a service of
general interest (sport, education,) The sponsor covers a part if the cost of the activity.
Issues that arise under a Sponsorship Agreement:
● Definition of benefits to the sponsor.
● Any payments due under the contract.
● Circumstance in which trademarks/logos of the sponsor should be displayed.
● Rights of each party and termination clauses.

Conflicts
National Courts of Justice will resolve the conflicts.
Special entities may offer help, but do not substitute the Courts of Justice.
● Asociación para la regulación de la Comunicación Comercial (Autrocontrol).
Courts of Justice: First Instance Commercial Court of Justice - Provincial Audience - Supreme Court
Actions: what can be asked to the courts of justice to do (UCL, art 32)
● Stop unfair behavior or prohibition of its future repetition.
● Action to remove the effects.
● Rectify misleading, incorrect or false information.
● Action for compensation of damages.
 CASE 6: Antitrust
Antitrust: rules that are designed to promote fair competition and better consumer protection.
How to control big companies acting freely in the market?
● Through antitrust laws.
Legislation that tries to avoid any type of behavior that could damage the efficient competition of the
market and the consumer welfare.
In the EU, the Antitrust Law is oriented to big companies that are capable of creating great damage.
● For smaller businesses, the Unfair Competition Law will apply.

Market Structure

Monopolistic
Perfect Competition Oligopoly Monopoly
Competition
Many producers and There are many There are many There are many
many consumers. producers and many consumers but only a consumers and only
Firms have no market consumers. few producers. one producer.
power. Firms have light market Firms have some A sole firm has
Free market. power. market power. complete market
There are no barriers to Free market. Closed market. power.
enter. There are no barriers to Natural and/or legal Closed market.
Products are enter or exit. barriers to enter. There are natural and
homogenous. Products are Product is /or legal barriers to
differentiated. differentiated. enter.
Unique product.

● Structural competition: providing plenty of agents to the market. Will offer many options to choose
from.
● Efficient competition: goal is to provide the best product to customers, not necessarily through
many agents.
ú Antitrust protects the concept of efficient competition.
ú It is ok to have a few agents if they are the best.
The situation of perfect competition does not exist in the real world.
Goals of Antitrust Law
Competition: encourages companies to offer consumers goods and services at the most favourable terms.
Encourages efficiency and innovation and reduces prices.

● In order for competition to be effective, it requires companies to act independently of each other, but
still subject to the competitive pressure exerted by others. 

The European Antitrust policy is developed from two general rules set out in the Treaty of the
Functioning of the European Union

1. Article 101: prohibits agreements between two or more independent market agents operating in
the market. (restricts competition)
1. The clearest example of infriction of this article is the creation of cartels between
competitors, that may involve price-fixing and/or market sharing. 
2. Article 102: prohibits firms that hold a dominant position in a market to abuse that position.
Actions such as charging high prices, limiting production or refusing to innovate.

Criteria to Define Relevant Markets

1. Product: physical good that both companies offer to a sector of the market.
 Products sold delimit the typology of market.
2. Barriers: obstacles that firms face when entering a new market. Help existing markets to
maintain the market power.
 High costs, tax benefits, consumer loyalty…
3. Agents: physical and juridical persons that develop a determined activity in the market of a
specific sector.
 More economic agents in a market is linked to a greater competition.

Authorities of Competition

The European Commission and the national competition

authorities in all EU Members States (NCAs) cooperate
through the European Competition Network (ECN) that
creates an effective mechanism to counter companies that
engage in practice that restrict competition surpassing borders. 
The European Commission is empowered by the TFEU to apply the rules and disposes of numerous
investigating powers. The Commission may impose fines on firms that violate the EU antitrust rules.

 The Commission has developed a policy on the application of EU competition laws to actions for
damages before national courts. 

 The Commission also cooperates with national courts to ensure that the EU rules on competition
are applied correctly and equally through all the European Union. 

NCAs are empowered to apply Articles 101 and 102 of the TFEU to ensure that competition is not
restricted or distorted. National courts can also apply these provisions to protect the individual rights
given to citizens by the Treaty.

Behaviors in Antitrust Legislation

Agreement Merger Abuse of Dominant

Position
Regulation National level: National National level: National National level: National
Legislation (art 2 of the Legislation (art. 7-10) Legislation (art 2
antitrust Spanish Law) EU level: EU regulations Antitrust Law)
EU level: EU regulations on Mergers (EU EU level: EU legislation
(art. 102 EUT) Regulation of Merger) (art 102 TFEU)

Appliance / Body in National level: Comisión National level: CNMC National level: CNMC /
Charge Nacional de los or National Government Autoritat Catalana de la
Mercados y de la EU level: EU Competència / National
Competencia (CNMC), Commission. Courts of Justice
National Courts of EU level: EU
Justice / Autoritat Comission.
Catalana de la
Competència
EU Level: Comission
Agreements
Agreement between companies can happen between two or more companies and it can have any type of
restraint.
There are antitrust exemptions: (ex: Clayton Act of 1914)
● Labor exemption that covers labor unions from being defined as monopolies.
● Non-statutory labor exemption that protects union activity as being defined as antitrust.

Mergers
Combination of the activities of the different companies that may allow them to develop new products
more efficiently or to reduce production or distribution costs. Through this increased efficiency,
consumers may benefit from higher quality goods and services.
ú Some mergers reduce competition in a market by creating a dominant player and may harm
consumers through higher prices or reduction of innovation.
ú Mergers are permitted as long as they do not stop competition. The purpose of examining
mergers is to prevent harmful effects on competition.
Reasons for approval or prohibition of a proposed merger:
● If they can be expected to impede effective competition.
● If the merging parties are major competitors.
● If the merger would weaken effective competition in the market significantly.
Types of mergers:
1. Conglomerate: firms that are involved in totally unrelated busines activities.
2. Horizontal merger: companies in the same industry.
3. Market Extension Mergers: two companies that deal in the same products but in separate markets.
4. Vertical merger: two companies producing different goods for one specific finished product.
5. Product Extension Mergers: two business organizations that deal in products that are related to
each other and operate in the same market.
Regulation:
● EU level: EU control rules apply to all mergers no matter where in the world the merging
companies have their registered office, headquarters or production facilities.
a) Even if mergers are situated outside of the EU affect European markets if the businesses do
business in the European Union.
b) If the annual turnover of the combined businesses exceeds specified thresholds in European
terms, the merger must be notified to the European Commission.
● National level: CNMC
Abuse of Dominant Position
A firm is in a dominant position when it is not subject to any effective competitors’ constraints from other
operators on the market.
According to the Article 2 of the Spanish Antitrust Law, any abuse by one or more firms of their
dominant position in any part of the national market is forbidden.
An abuse consists in:
a) Direct or indirect imposition of prices or other unfair trading or services conditions.
b) Limitation of production, distribution or technical development to the unjustified prejudice of
firms or consumers.
c) Unjustified refusal to satisfy the demands of purchase of products or provision of services.
d) Application in trading or service relationships of dissimilar conditions to equivalent
transactions, which places some competitors at disadvantage.
e) Subordination of the conclusion of contracts to acceptance of supplementary conditions which
have no connection with the topic of the contracts.
The prohibitions stated in the article must apply in cases in which the dominant position in the market of
one or more firms has been established by legal provisions.

Effects of the Behavior in the Market

Agreements and exemptions Mergers Abuse of Dominant Position

Less competition during the
validity of the agreement.
Damages consumers'
welfare.
Revenue increases and costs
decrease.
Increased market share.
Access to new resources.
Employee motivation
decreases.
Uncertainty decreases.
Less competition.
Threat to the well-
functioning of the market.
No free market.
Lower offer that limits
production.
Greater prices.
Less product quality.
Disadvantages competitors.
 CASE 7: Insolvency

Moment in which a company is not able to pay their creditors at the current moment or in the future. In
this case, the company should be dissolved.

Goal of insolvency process: avoid this situation to happen. Opportunity to the firm to pay their creditors
so they can continue their activity in the market. If it is not possible to pay creditors, the last option is to
dissolve the company.
In this process, the company has two months to…

1. Inform investors.
2. Talk with creditors.
3. Present the petition of insolvency process to the Courts.

Form the moment the firm knows it can’t pay its creditors, it must…

a) Inform its general meeting.

b) Create an early proposal of composition: try to reach an agreement with the creditors.
c) Open an insolvency proceeding (present to the Courts of Justice)

It is mandatory to publish an insolvency process, so if another firm want to deal with a firm that is going
through an insolvency process, it will know. The Courts of Justice will declare that the businessperson is
inside an insolvency process by publishing it in the Mercantile Register to let other companies know the
situation.
The Courts of Justice will appoint an insolvency administrator who represents the financial interests of
the creditors.

● Subjective conditions (art. 27): being neutral, have the abilities required…
● Incapacities, incompatibilities and prohibitions: one cannot be an insolvency administrator if
they are linked to the -board of Directors of the debtor company or are not objective and other
conditions.
● Remuneration (art. 34): the assets of the company will be used to pay the administrator.
● Liabilities (art. 36): may face liabilities if they act against the law.
Voluntary insolvency process
The company presents the petition for insolvency
itself to the courts.
● Legitimacy: debtor (article 3/6/14).
Compulsory insolvency process
Creditors ask the Courts of Justice for an
insolvency process if a company is not paying
them.
● Legitimacy: creditor (art. 47)

Insolvency Process Effects

Effects on the debtor (art. 40-48):

● Suspension of power: if a voluntary insolvency process was requested, the directors of the company
can continue their professional activity but the insolvency administrator will control the financial
situation.
● Must provide books and documents to the insolvency administration.
● Seizure of assets: personal assets are included in case of compulsory insolvency process.
● Partners (social actions): investors may have lost their capital but will be the last ones to receive their
money back. If they were not informed in the general meeting, they can present a petition.

Effects on creditors (art. 49 - 54):

● Integration of the aggregate liabilities: all creditors must be informed that the company is in a
process of insolvency so they can ask for the necessary amount back. (Amount of money that the
company has to pay to its creditors)
● Individual actions/other court: until the insolvency process is finished, any other petition to the
company is stopped.
● Exercise of action, suspension of debtor power: creditors also have the power to present a
compulsory insolvency process.

Effects on specific claims (art. 58) and effects on contracts (art. 61)

Specific claims: claims for not receiving the money.

If a company has a contract with a company that is in an insolvency process, the company must wait until
the process is finished. The firm must inform the courts of justice that it is one of the multiple creditors
the company in the process of insolvency is uncapable of paying, so it can get its money back
Effect on detrimental action to the aggregate assets (art. 71)
When money has been taken away from the company that would have been used to pay its creditors, the
insolvency administrator will present the reintegration actions so they money is put back to its place
(assets), so they can be used to pay creditors.

Insolvency Administration Report

The insolvency administration has to present a report to the judge exposing the resolution of the company
(whether it can continue the activity or not).
The report should include:
● Insolvency claims: petition of a creditor, so it is included in the list of creditors.
● Types of claims:
ú Special preference.
ú General preference.
ú Subordinated.
● List of creditors.
● Publicity.
Order of groups to be paid:
1. Workers
2. Government
3. Financial market
4. Creditors
5. Partners of the company.

Proposed composition: it is inside the report and consists of proposal agreements made by the
insolvency administration with the creditors in which the majority of them accept to receive the money
later.

Early proposal of composition (art. 104, 105): directors try to reach an agreement with the different
creditors, so they accept receiving their money later than it was previously agreed. Is made by the
directors before the process of insolvency is started.

Adhesion by creditors (art. 108): once the company has published the list of creditors and some of the
noticed ones are not included, they can ask the courts of justice to be included.
Judicial Approval of Composition

Judicial approval of composition (art. 109): once the insolvency administration has all the information,
it has to present everything to the courts of justice.
Then, the courts of justice call for the general meeting of creditors and see if the agreements are true and
if all agree, approve all the proposals made.
● Opening the composition phase and calling the creditors meeting (art. 111): the composition phase
starts when the creditor meeting is held.
● Constitution of the creditors meeting (art 116).
● Minutes of the meeting (art 127): must know if each creditor has agreed or not to the proposals.
● Judicial approval of the composition (art 127)
ú If the majority of creditors do not agree, the courts will decide to dissolve the company.
ú If the majority agrees, the courts approve the composition and they will not be changed
again (they are published).
ú Once the courts have decided, it is mandatory to follow their decision since it is not an
agreement, it is a resolution of the courts of justice and any change will not be accepted.
● Fulfillment of the composition: the composition that was inside the resolution of the courts of justice
is being followed. This means that the company can pay at the same time and the amount of money
that it was stablished.
● Infringement (art 140): if the resolution is not followed, an insolvency process will be started again.
ú Winding up phase: requested by the debtor, creditor and/or insolvency administrator. In this
phase, the judge decides that the company has to be dissolved. (Dissolution, liquidation
process and extinction of the company).
 It can be reported years later even if the company no longer exists if the director has later money
to pay the creditors that were not paid when the company was dissolved. The directors will
continue to face unlimited liabilities until everyone is paid.

Classification of the Insolvency

Important in order to stablish the liabilities of the directors.
● Fortuitous: directors have been diligent. They did all that they could, present everything on time, try
to reach agreements… In this case, directors have less limited liabilities and more time to pay
everyone.
● Tortuous: directors didn’t present the insolvency process on time, did not inform the general
meeting… They have not been diligent. As they have not followed the law, directors face unlimited
liabilities until they have paid everyone.
Partners, creditors have the legitimacy to ask for the suspension of the directors. If they present the
petition, it is a voluntary insolvency process, but they will still face unlimited liabilities.

1. Voluntary or compulsory insolvency process. 

2. Early process of composition.  (once the state of insolvency is known).
3. Petition to the Courts of Justice
4. Declaration of insolvency proceedings.
5. Insolvency proceedings published in the Mercantile Register. 
6. Appointment of the insolvency administrator. 
7. Effects on debtors or creditors. 
8. Insolvency administrator report. 
9. Determination of the aggregate assets. 
1. Insolvency claims. 
2. Types of claims. 
3. List of creditors. 
4. Publicity.
10. Proposed composition.
11. Early proposal of composition
12. Report by the insolvency administrators. 
13. Adhesions by creditors. 
14. Judicial approval of the composition. (art. 108)
15. End of the common phase.
16. Opening of the composition phase.
17. Call for creditors meeting.
18. Constitution of creditors meeting.
19. Minutes of the meeting. 
20. Judicial approval of the composition (art. 127)
21. Publicity 
22. Fulfilment of the composition. 
23. Infringement.
24. Opening a winding up phase. 
25. Payment of creditors.
26. Classification of the insolvency.

Voluntary or compulsory Early process of composition
insolvency process. (art. 5 bis)
Effects on debtors or
Appointment of insolvency creditors (depending on the
administrator. type of process) (art. 49 -
54).
Determination of the Proposed composition (art.
aggregate assets. 99)
Opening of the composition
Constitution of the creditors
phase and calling the
meeting (art. 116)
creditors meeting (art. 111)
Classificiation of the
insolvency
Opening of the winding up Fortuitous
phase. Tortuous
Opening of insolvency Petition to the Courts of
proceedings (art. 5) Justice (within 2 months)
Effects on specific claims
Effects on contracts (art. 61)
(art. 58).
Early proposal of Adhesion by creditors (art.
composition (art. 104, 105) 108)
Judicial approval of the
composition (art. 127)
Minutes of the meeting (art. Dissolution. (if the majority does
126) not agree to the agreements)
Approval of the composition.
Declaration of insolveny
proceedings by the
Mercantile judge.
Effects on detrimental
action to the aggreagate
assets (art. 71)
Reintegration of the assets to pay
creditors.
Judicial approval of
composition (art. 109)
Fulfilment of the
composition.
Announcement in the
Mercantile Register (BOE
art. 24)
Insolvency administrator
report (art. 107).
Expose the resolution of the
company.
End of the common phase.
Infringement (art. 140)