LESSON 1 – LAW AND LEGAL SOURCES OF BUSINESS LAW

1. DEFINITION OF BUSINESS LAW

PRIVATE LAW PUBLIC LAW

Civil law Administra/ve law
Commercial/business law Criminal law
Procedimental law
Tax law

Is part of private law, involves rela/onship between individuals. It is also ‘’special law’’ by
contrast with general law or civil law.

It was always linked to commerce, industry or services and commercial transac/ons.

Business Law is the branch of law that deals with the rules and ins/tu/ons of commercial
transac/ons.
Not only commercial transac/ons are covered but also the subjects and the organiza/on of
those people doing commercial transac/ons and their professional organiza/on.

- We can define it as the part of private law that deals with the professional rela/onship of the
business owners with other business owners or their clients in the market.

In another sense, it can be seen as the body of law that governs business and commercial
transac/ons.

It is private law because its rules are directed to regulate the rela/onships between individuals.
And it is special because the individuals affected by the business law can be defined by special
characteris/cs: they are businessmen ac/ng as businessmen.

The term business is frequently used as if it were the subject of the law, but the real subject is
not the business but the person doing it, the natural or legal person ac/ng in the market: the
businessman or trader.
We can say that center of the business law is the businessman, the trader the person who
organizes the business and is responsible for it. And carries out the business in a view of profit
and assumes the risks of the business. This person can be a sole proprietor or holder, a
partnership, a company or a coopera/ve.

We also have to take into account Consumers Law, which regulates private rela/onship
between individuals and the businesses that sell goods or services, and which protect the
interests of consumers and recognizes consumer’s rights.
2. THE IMPORTANCE OF THE CONSTITUTION
The business ac/vity is developed in the market within the economic frame defined by the
Cons/tu/on.
The Spanish Cons/tu/on established the principle of ‘’Free enterprise within the framework of
a market economy’’ and the public authori/es guarantee and protect its exercise and the
defence of produc/vity in accordance with the demand of the general economy, and as the
case may be, in keeping with planning.

The part of the Cons/tu/on dealing with the basis of the market is known as the Economic
Cons/tu/on. The main aspects regulated in the Cons/tu/on are:
a) Business is free to establish themselves and act in the market to their convenience and the
private property right is recognized.
b) Essen/al resources or services can be reserved for the public sector, and it may also declare
the interven/on in companies when the general interest so requires.
c) Public ini/a/ve should also be subordinated to the general interest. Public ini/a/ve must be
developed in considera/on of its social func/ons.
d) The public authori/es shall effec/vely promote the various forms of par/cipa/on in
enterprise and facilitate coopera/ve enterprises by means of appropriate legisla/on.
e) The State may plan the general economic ac/vity to aSend to collec/ve needs, balance and
harmonize regional and sectoral development, and s/mulate the growth of income and wealth
and their more equitable distribu/on (art. 131) but always encouraging private ini/a/ve.
f) The State holds exclusive competence over mercan/le legisla/on without prejudice.
g) Consumer protec/on is a general principle of the Spanish legal system.

3. THE SOURCES OF BUSINESS LAW

Sources of law are the materials and processes out of which law is developed. There are two
different meanings of sources of law. On one hand, sources of law are the bodies where the
law is laid down. On the other hand, sources of law can be understand as the various ways in
which law comes into existence.

In the first sense, art. Art. 1 CC (civil code) states that the sources of law are: legal rule (ley),
custom and the general principles of law.

The authori/es producing the legal rules or legisla/on can be Na/onal or Autonomous
Communi/es. The Spanish Cons/tu/on enables only the Spanish Parliament to adopt the
legisla/on in Business Law.
The Autonomous Communi/es have only the power of promo/on of the economic
development of the Autonomous Community within the objec/ves marked by the na/onal
economic policy as well as the development of the na/onal legisla/on in those cases it has
been included in their Autonomous Statutes.
In other sense, we cannot forget that Spain is member of the European Community, and the EC
legisla/on is an upper level in hierarchy.
STATE AUTONOMOUS EUROPEAN UNION
COMMUNITIES
Art.149.6 Spanish Art.148 Spanish Cons/tu/on The Trea/es
Cons/tu/on
Exclusive produc/on Promo/on of local economy Secondary legisla/on
and development of na/onal
legisla/on

The sources of law are the same for Civil Law or Business Law. However, being the business law
a special part of private law there are some special/es established in ar/cle 2 of the 1885
Commercial Code.
GENERAL SOURCES OF LAW COMMERCIAL SOURCES OF LAW
The law The commercial law
Costums Commercial usages and costums
General principles Civil law
General principles

The authori/es producing the legal sources or legisla/on can be Na/onal or Autonomous
Communi/es. The Spanish cons/tu/on only the Spanish Parliament to adopt the legisla/on in
Business Law.

We cannot forget Spain is a member of the European Community and the EC legisla/on is an
upper level in hierarchy.

Commercial Code and Special legisla/on

The most important legal rule is the Commerce Code. Although it has been amended or
changed.
CIVIL LEGISLATION COMMERCIAL/BUSINESS LEGISLATION
Civil Code Commercial Code
Consumer Act Corporate Enterprise Act
Structural Changes in Trading Companies Act
Insolvency Act
Compe//on Act

Usages and customs

Custom is the second resource of law. Customs and prac/ces originally cons/tuted the nuclear
law of business.
To be considered as a real costume a usage or prac/ce must fulfill the following condi/ons:
must have existed for a long period of /me; have been exercised con/nuously within that
period in a peaceful way; have been felt to be obligatory.
When there is no legal rule in the Code or in the special legisla/on custom is to be applied.
However, it is said that in case of lack of regula/on for the mercan/le contracts the Civil code
will be applied instead of custom.
4.THE EUROPEAN UNION

The ins/tu/on
4 governing ins/tu/ons of the Community are European Parliament, Council, the Commission
and Court of Jus/ce.

- Council is the Community’s primary decision making body and its principal legislator. Is
composed of ministers from the governments of the member states, acts on proposals by the
Commission.

- Commission execu/ve arm of the Community. Empowered to apply its provisions and the
regula/ons, direc/ves and decisions made under the Treaty by the ins/tu/ons of the
Community, to formulate recommenda/ons and deliver opinions. Propose measures to be
taken by the Council and the European Parliament (30 members).

- The European Parliament is directly elected by voters in each member state. Empowered to
par/cipate in the progress leading up to the adop/on of Community acts. May also hear
pe//ons of any natural or legal person residing in a member state, and it has appointed an
Ombudsman empowered to receive complaints from any ci/zen of the European Union.

- The European Court of Jus/ce is the final arbiter of legal disputes arising under Community
law. Composed of 25 judges and assisted by 8 advocates. 3 principal func/ons. Provides judicial
review over acts of the Council, Commission and European Parliament. Gives ruling on
preliminary ques/ons as to the interpreta/on of the Trea/es or Community legisla/on referred
to it by courts of the member states. Determines whether a member state has infringed its
obliga/ons under the Trea/es. The Court of First Instance, 25 judges, has jurisdic/on in all
ac/ons brought against the Commission by natural or legal persons.

EU Law
The European Union Trea/es
European Union based on 3 pillars: EC trea/es, Common Foreign and Security Policy and Fields
of Jus/ce and Home Affairs.
The secondary sources of law
Comprise:
- Council Regula/ons based on a Council enabling regula/on, which are binding in their en/rety
and directly applicable in all member states.
- Direc/ves of the Council, the Parliament of the Commission, which are binding, as to the
result to be achieved, upon each member state to which they are addressed.
- Commission guidelines and no/ces, which have no binding force, but do have a certain self-
binding effect on the Commission.

Regula/ons – are directly applicable and binding in all EU Member States without the need for
any na/onal implemen/ng legisla/on.
Direc/ves – state general goals and leave the precise implementa/on in the appropriate form
to the individual Member State.
Decisions – are in all respects binding for those to whom they are addressed without the need
for any na/onal implemen/ng legisla/on.
 DIRECTIVES
General goals to be
implemented by Member
States
Not direct effect for ci/zens
Binding for ci/zens aher
Member States introduced in
its own legisla/on
REGULATIONS
Direct effect for ci/zens
Binging for everyone all over
the EU from publica/on in OJ
of EU
DECISIONS
Par/cular acts
Binding only for those to
whom they are addressed to

EU law and business law

The list of tasks entrusted to the EU is very wide-ranging, covering economic, social and
poli/cal ac/on.
The economic tasks are centered around establishing a common market that unites the
na/onal markets of the Member States and on which all goods and services can be offered and
sold on the same condi/ons as on an internal market and to which all Union ci/zens have the
same, free access.

5. INTERNATIONALIZATION OF BUSINESS LAW

Two ques/ons we have to resolve.
1. Which is the law applicable? The law applicable comes from 3 sources: customs, domes/c
regula/on and interna/onal trea/es.
2. How to resolve the disputes? Disputes may be conducted through interna/onal commercial
media/on, li/ga/on or arbitra/on.
Media/on is a private dispute resolu/on pursuant to an agreement between par/es.
Interna/onal arbitra/on is a private process in which the arbitra/ons or arbitral panel decide
the dispute by the interpreta/on of the agreement.

6. THE ENFORCEMENT OF BUSINESS LAW IN SPAIN

Court proceedings
The State is organized on a territorial basis into municipali/es, judicial districts, provinces and
Autonomous Communi/es, in which the Jus/ces of the Peace, the Courts of First Instance,
Examining Courts, Commercial Courts, Criminal Courts, Judicial Review Courts, Labor Courts,
Provincial Appellate Courts and High Courts have jurisdic/on. The Supreme Court and the
Na/onal Appellate Court (the laSer only for certain specific maSers) have jurisdic/on over
na/onal territory.

The Supreme Court is the highest judicial authority guarantee of cons/tu/onal rights,
safeguarded by the Cons/tu/onal Court.

The legal system consists of 4 types of courts: civil, criminal, administra/ve and labor courts.

Basic civil courts body ‘’Court of First Instance’’ together with Magistrates’ Courts, civil and
commercial cases are first referred.

‘’Commercial Courts’’ and ‘’Community Trademark Courts’’ specialized in the type of cases that
may arise in these respec/ve areas of law.

‘’Commercial Courts’’ deal with; bankruptcy, mari/me issues, compe//on, corpora/ons,

industrial property, assistance to arbitra/on proceedings, transported, general contractual
condi/ons.
Alterna/ve Dispute Resolu/on
The court system is a method of resolving disputes; however other means of resolving conflicts
may be more appropriate in certain circumstances. There are a number of alterna/ve dispute
resolu/on including arbitra/on, media/on and concilia/on.

ARBITRATION
The procedure by which the par/es refer their disputes to a third party or par/es for resolving.
Par/es agree to be bound by the decision of the arbitrator who decided the dispute according
to the law but outside the confines of the court and normal court procedure.
MEDIATION AND CONCILIATION
Media/on is conducted in private at a /me and place to suit the par/es and the mediator acts
like a facilitator through which the dispu/ng par/es can communicate and nego/ate.
Concilia/on is less formal than media/on.
If media/on or concilia/on fail, the par/es can bring the dispute before the tribunals.
 LESSON 2 – THE BUSINESS ORGANIZATION: THE SUBJECT

1. TYPES OF TRADERS

Are considered businesspersons:

1. Those who, having the legal capacity to engage in business, do so habitually.
2. Business or industrial companies incorporated pursuant to this Code

There are 2 main forms of legal organiza/on of a business;

sole trader (one person, an individual) who is doing business and considered the companies
that are formed following the rules of the Commercial Code, that are considered traders as
well.

Both an individual or a company can be a trader. To be considered a businessperson or trader

an individual or a company needs:
- to be organized in a professional way
- the organiza/on is held to put goods and services in the market
- act in his own name → under his own responsibility

In this sense a businessperson or trader is a person, individual or legal person, who organizes,
in a professional way, the means to offer goods and services in the market, the person who
professionally in his own name and under his own responsibility organizes business.
The sole trader
The sole trader is the person who organizes in a professional way the means to put goods and
services in the market, the person who organizes business in his own name and has the
responsibility for the success or failure of the enterprise.
Decides how to organize and run his business. Will raise the capital for the business by loans
against his private property or using hos private property itself.

Must comply with the same general obliga/ons. No limit to the size.

A sole trader has unlimited liability, which means he is personally responsible for all debts and
liabili/es of the business as we can see in art. 1911 of the Civil Code.

However, the Spanish legisla/on, permits certain limits to liability of the sole trader in 2
different ways:
1. Limited Liability Entrepreneur status can be taken on by an individual entrepreneur,
regardless of their business or professional ac/vity, to limit their liability for the debt deriving
from the conduct of their business which will prevent any such debt from affec/ng their
principal residence.
Condi/ons to be met are: registra/on of the sole trader as a Limited Liability Entrepreneur in
the Commercial Registry corresponding to the registered office; the value of the principal
residence must not exceed 300.000€; disclosure of his status of Limited Liability Entrepreneur
which requires that it has to be men/oned on all documents and the specific registry
par/culars must be clear to third par/es; registra/on at the Property Registry.

2. Single Member Company

Companies
Most business people prefer to share the organiza/on and the profits and loss of a business
with others and become a member of a company. The different types of companies in Spain
are:
- Sociedad Colec/va (General Partnership)
- Sociedad Comanditaria (Limited Partnership) and Sociedad Comanditaria por acciones
(Limited Partnership by shares)
- Sociedad de Responsabilidad Limitada (Limited Liability Comany), Soceidad de
Responsabilidad Limitada Nueva Empresa (New Limited Liability Company).
- Sociedad Anónima (Joint Stock Company/Corpora/on)

Member of a company (SRL or SA) enjoy the protec/on of the limited liablity. This means that if
the company has debts the partners cannot be made to pay those debts beyond what they
have already invested in the company as share capital. It protects investors against the debts of
the company.
2. HOW TO BECOME A SOLE TRADER:
To be a sole trader there is no a special legal procedure. Essen/ally, an individual decides to go
into business under his own name and organizes the necessary means for its purpose. There is
no need to register the business organiza/on.
To become a sole trader an individual needs the legal capacity to enter into contracts.
Although minors have not capacity enough to enter into a new business, they can con/nue the
business they inherit from their parents or predecessors. To do so they need to be assisted by a
legal tutor or guardian. The same rule is set for the incapable. That means that they cannot
become a trader by themselves (on their own, personalmente) but they can be traders, and
their own proper/es will be seized in case of unpaid debts: they are liable for the debts coming
from the business.

Prohibi/ons: the Commercial Code (art.13 and 14) established several prohibi/ons to enter
into business. They are rules not only for sole traders but for all those who are engaged in
business as agents or representa/ves of the trader. However, the prohibi/ons set in these
ar/cles must be completed with those other established in other legal bodies. We can think
about civil servants, government staff, and in general all those persons that can get advantage
if their posi/on or especial informa/on.

Employees, agents, proxies: the sole trader may employ other people in the business
organiza/on but they are only his employees, representa/ves or agents working or
collabora/ng with him in the business.

3. TRADERS’ LIABILITY
General liability
Any person when ac/ng in his own name is liable – economic responsibility for debts – and also
traders are liable for the economic consequences of their acts. As we have already said: the
debtor (individual or company) is obliged to pay all its debts with all present and future
proper/es.
They are liable for their contractual obliga/ons. When they enter a contract they agree
voluntarily on its terms, so that they will have to perform all their obliga/ons. If they fail to
perform their obliga/ons the other party can use the contractual remedies provided by they
law for the breach of contract.
They are also liable, like any other person, for damages caused by their acts and art.

Liability under consumer protecTon

Damages caused by defec/ve products.
European legisla/on protects consumers against damages caused by defec/ve products. The
main principle is liability without fault that means that where a defec/ve product causes
damage to a consumer, the product may be liable. Injured persons can therefore seek
compensa/on with regard to products put into circula/on in the internal market.
The injured person does not have to prove the negligence or fault of the producer or importer,
but he carries the burden of proof, so that he must prove: the actual damage; the defect in the
product; the causal rela/onship between damage and defect.
The injured person has 3 years within he can claim for compensa/on; this is a limited period
star/ng from the date on which the injured person became aware of the damage.
Damages caused by services.
Service providers shall be responsible for damages caused to consumers and users, except
where they can prove that they have complied with the demand and requirements established
in regula/ons and with all other care and diligence required by the nature of the service.
There are certain services that require an extra guarantee of certain levels of effec/veness or
safety determined in objec/ve condi/ons.

4. AGENTS

principal’s obliga/on to
perform the contract
Agency
Contract contract with
third party
on behalf of principal

Traders and companies enter into contracts with different persons to establish a variable range
of rela/onships for the development of the business. They are what in Spain we called
colaboradores of the trader. They are agents.

Agency is the rela/onship which exists between 2 persons: the agent and the principal by
means of which the agent is empowered to represent the principal and brings the principal
into a rela/onship with a third party. Third par/es are everyone with whom the agent deals on
behalf of the principal.

Types of agents in Spain legislaTon

Under the regula/on of the Commercial Code we find the rules for the employees, those who
work under the direct order of the trader: mercan/le factors and other employees
(dependientes y mancebos). They are linked with the trader by a labour rela/onship, and
represent and act as agents.
We can also find in the Spanish business law different types of self-employed persons
collabora/ng with the trader. These are brokers (corredores), commercial agents, agents in
commission. They are traders or professional who enter into contract with the trader and give
him their professional services. All of them have special regula/ons for the development of
their professional ac/vi/es.
General rules for agents
An agent must have legal authority to act on behalf of the principal. The authority arises when
an agent rela/onship is created usually by express agreement – oral or wriSen in an ordinary
document or in a notarial deed – or implied agreement. Ra/ficación.
A contract made by an agent with a third party is binding only where the agent was ac/ng
within his authority. Authority may be actual or apparent. Ra/fy.

Once the agent has created a contract between a third party and his principal, he has no
further responsibility. The principal and the third party are bound to each other. If the agent
acts as if he were an agent but no principal exists, he is liable on the contract made with 9 the
third party. If the agent acts outside his authority, he will be liable for breach of warranty of
authority and the third party may claim compensa/on for the damages suffered.

Du/es act in accordance with his principal’s instruc/ons, with reasonable care and skill and
must perform their roles as loyal representa/ves, opera/ng in good faith and in the best
interest of the principal. avoiding conflict of interests, maintaining confiden/ality not ac/ng
with no other purpose than that for which he was granted.

Rights, receive instruc/ons and informa/on of the business he has to perform and to be paid if
previously agreed.

5. FACTORS, AND OTHER EMPLOYEES AND ASSISTANTS

Factors
A factor is an agent appointed by the trader with general authority to engage in business in his
name and on his account. He is the director or manager of the business and his authority
includes a wide range of ac/ons in respect of the business as if the were the owner. He is
authorized to manage, direct and to enter into contracts concerning its business.

Directors or mercan/le factors have the authority to act in the name of the principal. This
authority can arise by prior consent of the trader given in a wriSen or oral way or even can
arise by subsequent consent of the trader who will give his ra/fica/on to the acts of the factor.

The factor shall nego/ate and enter into contracts on behalf of their principals, and on all the
documents they sign in that capacity, they shall state that they are doing so with powers or on
behalf of the person or company they represent.

Factor may not deal on their own behalf. If they nego/ate without that authoriza/on the profit
from the nego/a/on shall be for the principal and the losses shall be borne by the factor.

Trade factors and assistants shall be held liable to their principals for any damage they may
cause to their interests, due to have proceeded with malice, negligence or breach of the orders
or instruc/ons they may have received in performance of their du/es.
The termina/on of authority between the factor and the principle comes from several
situa/ons. In the first place, comple/on of fixed term or task; secondly by mutual agreement,
thirdly, by revoca/on or the authority made by the principal. The rela/onship comes also to an
end in case of death or insanity of the factor but the death or insanity of the principal is not
enough reason to ex/nguish powers of the director, who will con/nue as a factor or director
with the successors of the principal un/l there is a revoca/on of the factors authority.

When the rela/onship comes to an end the contracts and acts entered into prior to
termina/on – it must be no/fied to the factor – are valid. If the factor con/nues in his ac/ons
the principal shall not be bound to third par/es by the acts of the factor.

Employees and assistants

Traders may entrust other persons, apart from factors, the performance of a specific or a series
of formali/es of the business they perform, in a constant manner, in their name and on their
behalf, by virtue of a wriSen or verbal arrangement; recording this in the Regula/ons of their
companies, and no/fying private individuals by public announcements or by means of circulars
to their correspondents.

6. COMMERCIAL AGENTS
The agency contract seems an effec/ve manner for traders to save money and /me.

Commercial agents are appointed by trader through an agency agreement which is a contract
whereby an independent trader, the agent, permanently undertakes, for valuable
considera/on, the assignment of preparing or subscribing contracts with third par/es in the
name and on behalf of another trader, the principal.

The contract
The contract between the principal and his agent is characterized, on the one hand, by its
dura/on and, on the other, by the func/on of nego/a/on and promo/on for the purchase and
sale of goods. If agents are authorized to do so, they can also conclude and sign the contrats on
behalf of the principal.

Agents may perform their tasks within the business office or visi/ng clients. Agents may work
for several businesses or for only one principal. In these cases some/mes can be difficult to
dis/nguish whether an agent is an employee or a trader himself. Agents may work exclusively
for the principal, however exclusivity is not essen/al to the contract but only agreed in
accordance to the interest of the trader’s business.

For the valid conclusion of the contract, the contract doesn’t need to be wriSen. However, the
agent and the principal are en/tled to receive from the other on request a signed wriSen
document seong out the terms of the agency contract including any terms subsequently
agreed.

One of the basic features of agency is that the rela/onship is a long term one. The period of
dura/on of the contract can be established by fixing a determinate period of rime or by an
indefinite period. This is of great importance for ex/nc/on of the contract.
Du/es and rights of the par/es
DUTIES OF AGENTS
Agents and principal must act duty fully and in good faith to each other. The principal must
provide his commercial agent with all the necessary documenta/on rela/ng to the goods
concerned and give all the informa/on necessary for the performance of the contract.

Agents must look aher his principal’s interests and act du/fully and in good faith. He must
make proper efforts to nego/ate and conclude the transac/ons. He also must accept in the
name of the principal all the claims from clients about the goods sold and keep a separate
accountancy for each of the principals on behalf of whom he acts.

RIGHTS OF AGENTS
Commercial agents shall be en/tled to the remunera/on. Remunera/on may be wholly or in
part by commission on commercial transac/ons concluded during the period covered by the
agency contract. In the absence of any agreement on this maSer between the par/es,
remunera/on will be in accordance to the usages that are customarily allowed in the place
where he carries on his ac/vi/es. If there is no such customary prac/ce a commercial agent
shall be en/tled to reasonable remunera/on taking into account all the aspects of the
transac/on.

Upon termina/on of the contract, commercial agents are en/tled to compensa/on for clients if
his previous ac/vity were s/ll producing substan/al benefits to the principal.
Two main condi/ons need to be fulfilled. The first one, the agent must has brought new
customers to the principal or has significantly increased the volume of business with exis/ng
customers. The second, the payment must be equitable taking into account all the
circumstances and, in par/cular, the commission lost by the commercial agent on the business
transacted with such customers.
 LESSON 3 – MERCANTILE REGISTER. ACCOUNTANCY

1. THE MERCANTILE REGISTER

The purpose of the Business Registry is:
a) The inscrip/on of business: Sole traders; Business companies; Lending and insurance
companies, as well as reciprocal guarantee companies; Collec/ve investment ins/tu/ons and
pension funds; Any individuals or corpora/ons, when so provided by law; Economic interest
groupings; Civil Professional Companies incorporated subject to the requirements established
in the specific legisla/on for Professional Companies; and the acts and contracts established by
law.
b) The legisla/on of the corporate books
c) The deposit and publicity of accoun/ng documents and any other func/ons they are
aSributed by the Laws.

The Mercan/le Register is a public organiza/on and shall be run under the auspices of the
Ministry of Jus/ce. The mercan/le register system is comprised of Territorial Mercan/le
Registers and by the Central Mercan/le Register, dependent upon the Ministry of Jus/ce.

The Central Territorial Register is located in Madrid. It is with the following tasks:
a) The centraliza/on, organiza/on, processing and referen/al informa/on of data rela/ve to
corporate acts in the Territorial Mercan/le Registers and which are sent by him.
b) The reserva/on and publica/on of company and legal en/ty names.
c) The publica/on of the Official GazeSe of the Mercan/le Register.

The Territorial Mercan/le Registers are located in each of the capitals of the
Spanish territorial provinces. The registra/on with the Territorial Register is compulsory for
Companies and other business en//es but is op/onal for the sole trader. Once the entries are
made in the Provincial Register, the Spanish legisla/on recognizes the effects characteris/cs of
legi/ma/on and authority to aSest with others and will be published in an Official GazeSe.

The Business Registry is public. This publicity shall be made effec/ve by cer/fica/on of the
content of the entries issued by the Registrars, or by simple informa/ve note or copy of the
entries and the documents deposited at the Registry.

The Central Registry shall not issue cer/fica/ons of the data in its archives other than those
which concerns the objects and names of companies and other en//es that may be registered.
- Ex-officio (automa/cally)
- Borme (bolepn official del registro mercan/l) What happens if we don’t bring the documents
(/ene que ver con el Borme).
The registraTon
Only open to the facts, deeds or transac/ons determined by law.
Registra/on is mandatory except for self-employed businessmen who are not ship-owners, and
mutual funds.
Register entries are made at the request of the party concerned and not ex officio by the
Registrar Officer.
Is closed to any document that contradicts or is incompa/ble with documents registered
previously, even if such document bears an earlier date. Must abide by the strict chronological
order of submission.
The Mercan/le Registrar must, under his own responsibility, verify the legality of the extrinsic
forms of the documents whose entry is requested and, as appropriate, the legal capacity and
legi/ma/on of the persons delivering them, the validity of the content of such documents and
any supplements, as well as what ensues therefrom and from the entries in the Register itself.

The effecTveness of the registraTon

Principles ruling the entries:
a) Legi/ma/on: the content of the Mercan/le Register is presumed to be accurate and valid
and its entries are safeguarded by the Courts and are legally effec/ve un/l such 3 /me as a
judicial decision renders them inaccurate or null and void.
b) Declaratory value: the registra/ons of the acts and contracts have, in general, a declaratory
value. That means that such acts have been performed and executed outside the Mercan/le
Registry, but the registra/on does not corroborate their existence or validity. Their existence or
validity does not come from registra/on but by the ac/ons of the traders when entering into
contracts.
c) Authority to aSest documents: A declara/on of inaccuracy or nullity shall not adversely
affect the rights acquired by third par/es in good faith, rights being understood to have been
acquired according to law when acquired by virtue of an act or contract that is valid pursuant
to the contents of the Register.
d) Effects: Acts that are subject to registra/on will only have effects vis-à-vis third par/es ac/ng
in good faith from the date of their publica/on in the “Official Journal of the Mercan/le
Register”, the effects of the entry being upheld, although in the event of transac/ons made
within the fiheen days following publica/on, the acts entered and
published shall have no effects vis-à-vis third par/es who prove they could not have been
aware thereof.
2. ACCOUNTS
Important ques/on: How do we approve the financial statement?

Legal framework
The basic legisla/on seong out the legal framework in the sphere of accoun/ng law is
embodied in Spanish corporate legisla/on and has been amended in recent years in response
to the mandatory harmoniza/on of that legisla/on with EU Direc/ves.

A hierarchy of sources has been established to dis/nguish between:

a) fundamental legisla/on, (the Commercial Code and the Revised Spanish Corpora/ons Law)
which contain basic, stable and las/ng principles
b) implemen/ng regula/ons, (the Spanish Na/onal Chart of Accounts, its industry adapta/ons)
and
c) decisions of the ICAC, which would contain more detailed rules, the contents of which could
be modified with greater ease.

Wrapping up the main areas in the process of adap/ng Spanish accoun/ng legisla/on to
interna/onal accoun/ng legisla/on are:
a) reforming and adap/ng Spanish corporate accoun/ng legisla/on, which made significant
amendments to the Commercial Code, and to the then in force Revised Spanish Corpora/ons
Law, Limited Liability Companies Law and other industry-based accoun/ng standards and,
lastly, adapted for the first /me the Corporate Income Tax Law to the new accoun/ng
legisla/on.
b) approving the Spanish Na/onal Chart of Accounts.
c) approving the Spanish Na/onal Chart of Accounts for small and medium enterprises and the
specific accoun/ng rules for very small enterprises
d) approving the Standards for the Prepara/on of Consolidated Financial Statements and
amending the Na/onal Chart of Accounts, and the Na/onal Chart of Accounts for Small and
Medium Enterprises.
There is a process of industry-based accoun/ng legisla/on being adopted, among which the
following industry adapta/ons to the new Spanish Na/onal Chart of Accounts have been
already approved.

Duty of accountancy (Keep accountancy for 5 years, someTmes 6)

“All businesses must keep orderly accounts, in keeping with the ac/vity of their business
ac/vi/es that allows chronological monitoring of all their opera/ons, as well as periodic
prepara/on of balance sheets and inventories. Notwithstanding the terms set forth in the laws
or special provisions, an inventories and annual accounts book and another daybook must
necessarily be kept”.
Accoun/ng shall be kept directly by the businesspersons or other persons duly authorized,
notwithstanding the former’s liability. Authoriza/on shall be assumed to have been granted,
except evidence to the contrary.
Secrecy of accountancy
“The accounts of traders are secret”. there are certain situa/ons in which a trader may be
compelled to show the content of his books.
General inspec/on and par/cular show of a specific part of it. It is up to the judges and the
faculty to oblige the trader for the show of accountancy. That means that when the interested
person believes he has a right to examine the books of the trader, he has to demand it from the
tribunal. The tribunal may also act ex officio.
The exam of the book shall be made with all the guarantees for the trader. This means that the
books are going to be examined in his presence, on the trader's premises, in the trader's office.
It is of great importance to take the appropriate measures for the conserva/on and guard of
the books.
The person who requested the examina/on. Can examine the books personally or with the aid
of experts, always following the condi/ons fixed by the judge.
General inspec/on may be ordered in the following cases: universal succession, temporary
receivership, bankruptcies, liquida/ons of companies or business en//es, redundancy
proceedings, and when the partners or legal representa/ves of the workers are en/tled to
examine these directly.
Par/cular inspec/on of a part may be ordered when the person “to whom they belong has an
interest or liability in the maSer in which produc/on is appropriate” and, of course, the
inspec/on shall be limited exclusively to the points that are related to the maSer concerned.

Books and accounts

The rules governing the accoun/ng records that have to be kept by traders and companies are
contained in the Commercial Code, which requires all traders to keep orderly books of account
that are suitable for their business and to keep:
a) a book of inventories and balance sheets
b) a day book and any other specific books or records required under laws or in extraordinary
provisions.

Companies are also required to keep a book or books of minutes containing, at least, all the
resolu/ons adopted by the shareholders at the Annual General or Extraordinary General
Mee/ngs and by the companies’ other collec/ve bodies.

The Commercial Code provides that traders must present their mandatory books of account to
the Mercan/le Registry of the place in which they have their registered office in order that they
be officially cer/fied and stamped before they start to be used.
Entries and notes may be made by any suitable procedure on separate sheets that must
subsequently be bound sequen/ally to form part of the mandatory books of account, which
must be legalized within four months from the end of the repor/ng period.
Statements
The Commercial Code state that a set of financial statements comprises:
a) the balance sheet,
b) the income statement,
c) a statement reflec/ng the changes in equity during the period, d) a cash flow statement and
e) the annual report

All these documents must be seen as a whole as they cons/tute a set of informa/on for these
purposes. The cash flow statement is not obligatory where so established by a legal provision.
The requirements of the Companies Law in connec/on with financial statements also apply to
limited liability companies and partnerships limited by shares.
The new Spanish Chart of Accounts, states that its applica/on by all companies is mandatory,
regardless of whether their legal form is that of a sole proprietorship or a company, without
prejudice to such companies as are in a posi/on to apply the Spanish Na/onal.

General principles and standards

Pursuant to Spanish corporate legisla/on and the accoun/ng legisla/on in force, the
accoun/ng principles and standards in the following texts cons/tute generally accepted
accoun/ng principles and standards:
a) The Commercial Code and other corporate legisla/on;
b) The Spanish Na/onal Chart of Accounts and its industry adapta/ons:
c) Such implemen/ng provisions in the accoun/ng field as might be established by
the Spanish Accoun/ng and Audit Ins/tute; and
d) Any other specifically applicable legisla/on.

The accoun/ng principles that aim to ensure that financial statements, prepared clearly,
present a company’s equity, financial posi/on and results of opera/ons fairly. Accoun/ng
principles:
a) Going concern
b) Accrual
c) Consistency
d) Prudence
e) No offset
f) Materiality

The Spanish Na/onal Chart of Accounts states expressly that if the applica/on of the
aforemen/oned principles is not sufficient to ensure “fair presenta/on”, the notes to the
financial statements must contain the explana/ons required regarding the policies applied and
adds that if, due to excep/onal circumstances, the applica/on of an accoun/ng principle or
standard were incompa/ble with a fair presenta/on, such principle or standard should not be
applied.
The Spanish Na/onal Chart of Accounts also states that in the event of a conflict between
obligatory accoun/ng principles, that which is most conducive to the financial statements
presen/ng fairly the company's equity, financial posi/on and results of opera/ons shall prevail.
Notes to the financial statements
The Spanish Commercial Code states that the notes to the financial statements must complete,
expand upon and analyze the informa/on contained in the balance sheet and income
statement and must include, in certain cases, a statement of changes in financial posi/on.
The notes to the financial statements form an integral part of the financial statements.

(* Total assets less than 4M$ incomes less than 8M$ average workers less than 50)
 LESSON 4 – INDUSTRIAL PROPERTU AND COMPETITION LAW

INDUSTRIAL PROPERTY RIGHTS: inven/ons (patents, u/lity models), ornamental and design
rights (industrial design), iden/fy signs (trademarks, commercial names), business in Internet
(web pages and other problems).
COMPETITON LAW: compe//on law; unfair compe//on

INTELLECTUAL AND INDUSTRY PROPERTY

1. INTRODUCTION
Intellectual property refers to crea/ons of the mind: inven/ons, literary and ar/s/c works,
symbols, names and images used in commerce.

The importance of protec/ng intellectual property was recognized in the Paris Conven/on for
the Protec/on of Industrial Property in 1883 and in the Berne Conven/on for the Protec/on of
Literary and Ar/s/c Works in 1886.
Countries protect intellectual property for two main reasons: the first one, to give statutory
expression to the moral and economic rights of creator in their crea/ons and to the rights of
the public in-accessing those crea/ons; the second, to promote crea/vity, and the
dissemina/on and applica/on of its results, and to encourage fair trade, which would
contribute to economic and social development.

There are several reasons for the protec/on of intellectual property:

1) the progress and well-being of humanity rest on its capacity to create and invent new works
in the areas of technology and culture
2) the legal protec/on of new crea/on encourages the commitment of addi/onal resources for
further innova/on
3) the promo/on and protec/on of intellectual property spurs economic growth, creates new
jobs and industries, and enhances the quality and enjoyment of life.

The protec/on of intellectual property rights benefits:

In the first place, researches and inventors. Without the rewards provided by the patent system
they would have liSle incen/ves to con/nue producing beSer and more efficient products for
consumers.
Secondly, consumers. They are more confident and would buy all those products and services
that are realiable because of trademark protec/on and enforcement mechanisms to
discourage counterfei/ng and piracy.

Industrial property: types

- Patents and u/lity models: protect inven/ons
- Industrial design: protect the form and presenta/on
- Trademarks, trade names: dis/nguish products
- Geographical indica/ons: origin
- Domain names: Internet address

Copyright covers literary works, ar/s/c works, and architectural design. Rights related to
copyright include those of performing ar/sts in their performance, producers of phonograms in
their recordings, broadcasters in their radio and TV programs.
Industrial property: legisla/on
INTERNATIONAL
- Conven/on for the protec/on of industrial property (Paris Conven/on), 1833
NATIONAL
- Patents and u/lity models: Ley 24/2015 de patentes
- Trademarks: Ley 17/2001, de 7 de diciembre de marcas
- Industrial desings: Ley 20/2003, de 7 de julio, para la protección del diseño industrial
EUROPEAN
- Regula/on on the Community Trademark (2015)
- Regula/on on Community Design (2002)

Industrial property: ins/tu/ons

- Oficina Española de Patentes y Marcas, public body responsable for registra/on, gran/ng
industrial rights (patents, marks, designs) in Spain.
- Office for the Harmoniza/on of Internal Market / Oficina de Armonizacion del Mercado
interior, public body responsible for registra/on, gran/ng industrial rights in European
Territory.

2. PATENTS
Patents are exclusive rights granted for the protec/on of inven/ons by recognizing
their crea/vity and offering the possibility of material rewards for their marketable inven/ons.
Patent protec/on means that the inven/on protected cannot be commercially made, used,
distributed or sold without the patents owner consent.

Patentability
Not all inven/ons are patentable (arts. 4 and 5 LP). The law requires than an inven/on fulfill
the following condi/ons of patentability:
1. Industrial applicability (u/lity): the inven/on must be of prac/cal use or capable of some
kind of industrial or u/lity; we can say that the product invented can be manufactured or used
in any kind of industry, including agriculture (Art. 9 LP)
2. Novelty: it must show some new characteris/c that is not known in the body of exis/ng
knowledge (prior art) in its technical field.
3. Inven/ve step: the inven/on must not be obvious. It must show an inven/ve step that could
not be deduced by a person with average knowledge of the technical field.
4. Patentable subject maSer: that means that the inven/on must fall within the scope of the
subjects non excluded by law. Most countries, and so does Spain, exclude from patentability:
Scien/fics theories, mathema/cal methods; literary, ar/s/c or other aesthe/c crea/on;
methods for treatment of the human body and all those inven/ons which are contrary to moral
or public order.

Patents are granted by the State through na/onal patent offices. The Spanish office
is called Oficina Española de Patentes y Marcas. For the full protec/on of the inven/on the
inventor must fil an applica/on with the OEPM describing the inven/on and the office will
carry out the examina/on works in order to check if the inven/on fulfil all the condi/ons
needed to be protected. Once aproved, the OEPM register the inven/on and from that
moment the applicant is granted the rights of the patent.
The right to apply for a patent shall belong to the inventor or to his successors (art. 10 LP). It
can also be transferred to a third person. There are special rules set for the inven/ons made by
employees in the course of business (arts. 15-21 LP). From the registra/on the holder of the
patent has the right to use it and prevent others to use it without his consent. Prior to
registra/on there is no protec/on under patent law and the inven/on can only be protected as
know-how.

Rights and duTes of the owner of a patent.

The person to whom a patent is granted is known a the patentee; the owner of the patent, the
patent holder. Once a patent is granted with respect to a par/cular country, anyone who
wishes to exploit the inven/on commercially in that country must obtain the authoriza/on of
the patentee. Anyone who exploits a patented inven/on without the patentee’s authoriza/on
commits an illegal act.
The protec/on is granted for a limited period o 20 years. Once the patent expires, it enters the
public domain and becomes available for commercial exploita/on by others.
The rights conferred by a patent are the right to prevent others from exploi/ng the protected
inven/on without its consent (art. 59 LP ).
The owner of a patent is obliged to work the patented inven/on by implemen/ng it in Spain or
on the territory of a Member of the World Trade Organiza/on in such a manner that the
working is sufficient to sa/sfy the demand on the na/onal market within a certain period of
/me established in the law (art. 90 LP). The owner can work the patent either himself or
through a person authorized by him or grant a license to other par/es to use the inven/on on
agreed terms (contractual licenses) or sell his rights to the inven/on to someone else who will
become the new owner of the patent.
In certain cases or when the owner of the patent fails his duty to work the patent a compulsory
license may be granted. In these cases, the patent is exploited without the patentee’s
authoriza/on, for example, in the wider public interest by or on behalf of the government (art.
91 LP).

Remedies for infringements

The owner of a patent may bring appropriate ac/on of any type or nature before the ordinary
courts against any person who infringes his rights and he may demand the necessary measures
to safeguard those rights. In par/cular, he may seek for: an injunc/on ordering the offender to
stop the acts that infringe his rights as well as a compensa/on for the damage and prejudice
suffered. It is also important that the objects produced or imported in infringement of his
rights can be seized as well as the means exclusively used for such produc/on or for carrying
out the patented process. The owner may require the adop/on of the necessary measures to
prevent con/nued infringement of the patent, even the destruc/on of the products covered by
the patent. He may also claim for a public declara/on of the infringement. (arts. 70-71 LP).
3. UTILITY MODEL
Is the protec/on granted by the State for the protec/on for inven/ons that are less complex. In
the Spanish law u/lity models are given for the protec/on of inven/ons that are new and
involve an inven/ve step, and that confer on an object a form, structure or cons/tu/on that
result in an appreciable improvement in its use or manufacture (art. 137 LP). In par/cular, the
following may be protected as u/lity models: utensils, instruments, tools, apparatus, devices or
mechanical parts of a product.

The rights and du/es of the owner of the model are described in art. 148 in similar terms to
patents. The protec/on of the u/lity model lasts for 10 years.
- U/lity model receive different names: peSy patents, minor patent, small patent and its
regula/on is considerably differerent in the various na/onal regimes all over the world.

In Spain u/lity models require novelty but the novelty comes from the design of the object;
design giving the object a different and new use than the previous exis/ng one. It is some/mes
difficult to appreciate if we are dealing with a real inven/on or only with an u/litary change of
its shape. It is important to differen/ate the u/lity model from the industrial models o designs,
which only cover the ornamental form of the object.

4. INDUSTRIAL DESIGN
Industrial Designs refers to aesthe/cs and usability of mass-produced products, that makes
them aSrac/ve to the eye and improves its marketability. It is an expanding and ever more
used area and is expected to become much more u/lised by industry in the future, having
substan/al cost advantages over patents. Industrial designs merit copyright protec/on and
they are registerable industrial property rights. Industrial design law can protect such diverse
ar/cles as the shape of the sole of a shoe, an aSrac/ve mass-produced lamp, aspects of a car,
and pig pens.

The system which now operates in Spain provides protec/on as opposite to the ar/cle in which
it is incorporated. So protec/on is conferred for the design across any product to which it is
applied. The system has changed over a few years as a result of the Directve 98/71/CE and we
can find it in the Law 20/2003 of 7 July, on Legal Protec/on of Industrial Designs (ley para la
protección del diseño industrial)

Design is defined as the appearance of the whole or part of a product resul/ng from the
features of, in par/cular, the lines, contours, colours, shape, texture or materials of the product
itself or its ornamenta/on.

In order to be registerable a design must be new and have individual character. The design is
new if no design is iden/cal to it or has been previously made available to the public before the
filing date for registra/on (Art. 6 LDI). A design has individual character if the overall impression
it produces on an informed user differs from the overall impression produced on by a design
which has been available to the public before the filing date of the applica/on for registra/on.
(Ar.t 7 LDI).
The design right gives the owner the exclusive right to use the design and authorize others to
use it including the right to make, offer, put on the market, use the product and to patent shall
give its owner the right to prevent others from using it without his consent (art. 45 LDI). The
infringement of the right gives the holder the possibility to issue proceedings in the court and
he may seek for: cessa/on of the acts that infringe his rights; compensa/on for the damage
and prejudice suffered; seizure of the objects produced or imported in infringement of his
rights; whenever possible, aSribu/on of the ownership of the objects and means seized; the
adop/on of the necessary measures to prevent con/nued infringement of the design; and
publica/on of the judgment against the person infringing the design (art. 53LDI).
Compensa/on for damage shall cover not only the losses suffered but also the gains which the
design holder has failed to obtain as a result of the infringement of his right.

The design right lasts for a maximum period of 25 years in total, which consists of five yearly
renewable periods (art. 43 LDI). If the design has not been renewed it lapses.

5. TRADEMARKS
Trademarks are the signs used in trade to iden/fy products. That is, the symbols capable to
dis/nguish the goods or services of one enterprise from those of other enterprise. The
iden/fica/on of the products serves, as well, to iden/fy the business. In this sense, when any
of us buy any product knows where and by whom has been produced and marketed.

The Spanish legal regime has been modified recently for its adapta/on to the European
legisla/on. Indeed, the European regime was revised in order to “promote throughout the
Union a harmonious development of economic ac/vi/es and a con/nuous and balanced
expansion by comple/ng an internal market which func/ons properly and offers condi/ons
which are similar to those obtaining in a na/onal market”. “For those purposes, Trade Marks
enabling the products and services of undertakings to be dis/nguished by iden/cal means
throughout the en/re Union, regardless of fron/ers, should feature amongst the legal
instruments which undertakings have at their disposal”. The new regime includes Direc/ve (EU)
2015/2436 to approximate the laws of the Member States rela/ng to Trademarks and EU
Regula/on 2017/1001 on the European Union trademark. Following the Direc/ve, the Spanish
Ley 17/2001, de 7 de diciembre, de marcas (Act on Trademarks) has been amended in 2018.

Defini/on of trademark can be found in art. 4. It reads:

A trademark may consist of any signs, in par/cular words, including personal names, or
designs, leSers, numerals, colours, the shape of goods or of the packaging of goods, or sounds,
provided that such signs are capable of:
a) dis/nguishing the goods or services of one undertaking from those of other undertakings;
and
b) being represented on the register in a manner which enables the competent authori/es and
the public to determine the clear and precise subject maSer of the protec/on afforded to its
proprietor

Businesses can protect their marks through registra/on with the na/onal office of patents and
trademarks. While the registra/on confers the owner full protec/on, the use of the trademark
gives the user certain rights: the first user has priority in a trademark dispute, not the one who
first registered the trademark.
The process to register begins with an applica/on at the Spanish Patent and Trademark Office
(OEPM), that will exam if the proposed sign has all the requisites to be registered. Once the
registra/on is completed the applicant acquires the rights of the property of the mark.

There are two main requirements to be admiSed as trademark. In the first place, the sign must
be capable to dis/nguish products from other similar products. In this sense we say the mark
has to be dis/nguishable among different products. Secondly, the sign shall not be misleading
or violate public order or morality. You can register for your products/brand any symbol or
combina/on of symbols that can be used to dis/nguish your product from other similar
products. That means that marks cannot be generic or confusing with other marks or any other
industrial property rights. In other sense, a mark cannot be against moral or using official
names or symbols
- Several prohibi/ons are stablished in arts. 6 to 9 of the Spanish Law. Not dis/nc/ve signs are
generic terms; descrip/ve terms; references to geographical origin; leSers, numerals and basic
geometrical shapes; misleading signs, that can induce to errors. Neither can be registered sings
that are similar or iden/cal to previous marks or tradename, nor civil names, nicknames of
individuals other than the applicant; names of companies or corpora/ons. Finally,
reproduc/ons of official symbols or those signs contrary to moral or public order cannot be
admiSed as trademarks.

Art. 34, reads that “The registra/on of a trademark shall confer on its owner the exclusive right
to use it in economic transac/ons. And so, the owner of a registered trademark may prohibit
third par/es, without his consent, from using in economic transac/ons any iden/cal or similar
signs to the trademark which creates a risk of confusion among the public.
- And so, the proprietor of that registered trade mark shall be en/tled to prevent all third
par/es not having his consent from using in the course of trade, in rela/on to goods or
services, any sign where:
(a) the sign is iden/cal with the trade mark and is used in rela/on to goods or services which
are iden/cal with those for which the trade mark is registered;
(b) the sign is iden/cal with, or similar to, the trade mark and is used in rela/on to goods or
services which are iden/cal with, or similar to, the goods or services for which the trade mark
is registered, if there exists a likelihood of confusion on the part of the public; the likelihood of
confusion includes the likelihood of associa/on between the sign and the trade mark;
(c) the sign is iden/cal with, or similar to, the trade mark irrespec/ve of whether it is used in
rela/on to goods or services which are iden/cal with, similar to, or not similar to, those for
which the trade mark is registered, where the laSer has a reputa/on in the Member State and
where use of that sign without due cause takes unfair advantage of, or is detrimental to, the
dis/nc/ve character or the repute of the trade mark.

The protec/on lasts for a period of 10 years as from the applica/on date. At ten years, the
trademark and/or trade name must be renewed. A trademark and/or trade name may be
renewed indefinitely. To get the rights and to maintain them the applicant has to pay the fees.
Renewals have to be paid every ten years. The amount of these fees is updated every year
through the General State Budgets Act, and the amount is shown on the SPTO's web page
(www.oepm.es), so it is advisable to check the website to confirm the amount payable.
To keep the rights, the owner of the trademark has the obliga/on to use the trademark either
himself or through a person authorized by the owner. If these signs are not used, the courts
may declare them expired.

The protec/on of the sign obtained through registra/on in the OEPM covers only the Spanish
territory. The protec/on abroad can be obtained:
1. Directly: country by country, by filing the corresponding applica/ons in each country where
you want to register the trademark.
2. Through an INTERNATIONAL TRADEMARK. Through this procedure, regulated protec/on can
be obtained in up to 85 countries by filing a single applica/on at the OEPM (SPOT), to be
forwarded to the Interna/onal Office of the WIPO (Geneva), whereby registra/on will have the
same effects as if the applica/on had been submiSed in each of the designated countries. Aher
the applica/on is received at the WIPO, it is sent to the designated countries, where the
na/onal processing begins. The applica/on may be granted or refused independently in each
country.
3. Through a COMMUNITY TRADEMARK. This procedure is regulated by the Community
Trademark Regula/on, which establishes the possibility of obtaining protec/on in all EU
countries through a single applica/on, which may be submiSed at the SPTO or the OHIM in
Alicante, at the applicant's choice.

6. GEOGRAPHICAL INDICATIONS
A geographical indica/on is a sign used on goods that have a specific geographical origin and
possess quali/es or a reputa/on due to that place of origin. Agricultural products are typically
included due to the fact that they have quali/es that derive from their place of produc/on and
influenced by specific local geographical factors, such as climate and soil. Many of them have
acquired valuable reputa/ons which, if not adequately protected, may be misrepresented by
commercial operators. Examples of geographical indica/ons are the Denominaciónes de origen
Rioja, Piquillo de Lodosa, Alcachofas de Tudela o the Appel d’origin Roquefort. A geographical
indica/on may be used by all producers who make products that share certain quali/es in the
place designated geographically.

Geographical indica/ons are understood by consumers to denote the origin and quality and, in
this sense, false use of geographical indica/ons by unauthorized par/es is detrimental to
consumers and legi/mate producers. Consumers are deceived into believing they are buying a
genuine product with specific quali/es and characteris/cs; producers are deprived of valuable
business and suffer damage to the established reputa/on of their products.

Geographical indica/ons are protected in accordance with the trademark.

7. DOMAIN NAMES
A domain name is the Internet address that can be obtained from the En/dad Publica
Empresarial Red.es (www.nic.es) in the case of '.es' domain names. Whenever a name that
conflicts with a trademark is registered, legal protec/on may be obtained either in court or
through the arbitra/on system established by the World Intellectual Property Organiza/on.
Second-level domain names under '.es' will be assigned based on the order in which
applica/on was submiSed. Domain names that have been previously assigned cannot be
applied for. Syntax rules also have to be met, and they cannot include reserved terms included
in a series of lists (Internet terms and terms related to na/onal or interna/onal ins/tu/ons),
pursuant to the corresponding legisla/on.

At the third level, domain names can be assigned under the following indicators: '.com.es',
'.nom.es', '.org.es', '.gov.es' and '.edu.es'. These third-level domain names will be assigned
based on the order in which the applica/on was submiSed. Domain names that have been
previously assigned cannot be applied for. When assigning domain names with the 'gov.es' and
'edu.es' indicators, compliance with the legi/ma/on requirements laid down in current
legisla/on in force will first be verified, as well as compliance with syntax rules. Third-level
domain names under the '.com.es', '.nom.es' and '.org.es' indicators also have to comply with
syntax rules, and they cannot include reserved terms included in a series of lists (Internet terms
and terms related to na/onal or interna/onal ins/tu/ons), pursuant to the corresponding
legisla/on.

The registra/on of domain names under .com, .org and .net is not subject to any type of
preliminary check. They are assigned following the principle of 'first come, first served', and are
registered through the ICANN, which has its registered address in California.

COMPETITION LAW
1. INTRODUCTION

Objec/ves of compe//on law:

Compe//on law is concerned with ensuring that firms opera/ng in the free market do no
restrict or distort compe//on in a way that prevents the market from func/oning op/mally.
Economic objec/ves:
The belief that compe//on amongst undertakings produces the best outcomes for society is
based on economic models of perfect compe//on and monopoly, and concepts of welfare and
efficiency.
Other objec/ves: it is possible for systems of compe//on law to pursue non-economic
objec/ves such: preserva/on of liberty and dispersal of economic power; protec/ng the small
from the big; protec/ng fair behaviors in the market; public policy and socio poli/cal factors;
produc/vity growth; happiness.
The process of compe//on is seen as being of value and meri/ng protec/on.
Protec/on is needed when undertakings look forward to restrict compe//on or when they
behave in a reproachable way, using unfair methods to aSract clients and consumers.

We, then, have two different aspects of compe//on law.

1. Compe//on Law: protec/ng compe//on

An/trust legisla/on.
- Spain: Ley Defensa de la Competencia (2007), following EU Treaty
- EU: arts. 101-109 TFEU
Maintaining the compe//on, and States interferes in the market to guarantee the existence of
free compe//on establishing regula/ons to prevent the restric/on of compe//on in the
market by the agreements between enterprises that arrange prices or divide the markets
between them. It also includes mergers and prevents dominant companies from abusing its
posi/on through excessive pricing or discrimina/on against costumers. The interference with
the free market is in the interests of the consumers. Compe//on is a basic mechanism of the
market economy and encourages companies to provide consumers products that consumers
want. It encourages innova/on, and pushes down prices. In order to be effec/ve, compe//on
needs suppliers who are independent of each other, each subject to the compe//ve pressure
exerted by the others.

2. Unfair Compe//on Law: san/ons to unfair behaviours.

In Spain we use Ley de Competencia Desleal and no EU legisla/on.
Using unfair prac/ces and this occurs when the enterprise employ “any” method to aSract
consumers and get rid of compe/tors, such as denigra/on, misleading adver/sing or induce
compe/tor’s employees to breach of contract or other similar prac/ces. We then talk of Unfair
Compe//on.

In Spain we have a double regula/on of economic compe//on. On one hand, the rules
governing compe//on the Compe//on Act (Ley 15/2007, de 3 de Julio de Defensa de la
Competencia), whose main is objec/ve the maintenance of compe//ve market. On the other,
the rules governing Unfair Compe//on, the Act Against Unfair Compe//on (Ley 3/1991, de 10
de enero, de Competencia Desleal), amended in 2009, and the Adver/sing Law (Ley 34/1988,
de 11 de noviembre, General de la Publicidad).

Finally it is important to no/ce that compe//on law in Spain has a double level of legal
sources: European Union Law and Na/onal Law, being the EU Law basic provisions art. 101 to
109 of the TFUE. EU Law will be applied if the market affected is the European Market. Spanish
Law, when the market affected is the Spanish market.

2. COMPETITION LAW
The Compe//on Act 2007, has reformed the previous Act of 1989, with two main objec/ves:
firstly, to overcome the shortcomings of the former ins/tu/onal system by seong un an
ins/tu/onal structure to protect effec/ve compe//on in the markets; and, secondly, to align
some aspects of the Spanish compe//on system with EU compe//on law, which has
experienced a steady reform since 2000.
The Act, estates in its preamble that “Ar/cle 38 of the Cons/tu/on recognises the freedom of
enterprise within the framework of a market economy and the guarantee and protec/on of it
by the public authori/es, in accordance with the demands of the economy in general and, as
the case may be, of the planning. The existence of effec/ve compe//on between businesses
cons/tutes one of the defining elements of the market economy, disciplines the ac/on of
businesses and reallocates the produc/ve resources in favour of the most efficient operators or
techniques. This produc/ve efficiency translates to the consumer in the form of lower prices or
an increase in the quan/ty offered of the products, their variety and quality, with the
subsequent increase in the welfare of society as a whole.

In this context, there is an overall agreement with regard to the growing importance of
compe//on, which has become established as one of the principal elements of economic
policy today. Within the supply policies, compe//on policy complements other ac/ons
regula/ng economic ac/vity and is a first-rank instrument for fostering the factor produc/vity
and the general compe//veness of the economy.
Consequently, it is necessary to have a system that, without intervening unnecessarily in the
free business decision-making, allows for the adequate instruments to guarantee the good
func/oning of market processes”.

With this aim the Act regulates

1. An/compe//ve prac/ces and prohibited conducts

2. Mergers
3. Public Aids
4.The Na/onal Authori/es of Compe//on: The Na/onal Comission of Markets and Compe//on
(Comisión Nacional de los Mercados y la Competencia [CNMC]).
5. Procedures for inves/ga/ng an/compe//ve behaviors an imposing fines.

AnTcompeTTve pracTces and prohibited conducts

- The subjects
Both art. 1 and 2 Compe//on Act applies to the behaviour of undertakings. The no/on of
undertaking is constructed very widely and it is generally understood as “every en/ty engaged
in an economic ac/vity regardless of the legal of the en/ty and the way it is financed”. That
means that not only companies but also natural persons can cons/tute undertaking as the
term "undertaking" designates an economic unity for the purposes of the subject-maSer of the
agreement, even if in law economic unit consists of several persons, natural or legal. This
means that general independent undertaking with separate legal personali/es may cons/tute
only one undertaking for the purposes of compe//on law (parent company and its subsidiary;
several companies belonging to the same group).

It is also important to no/ce that the term includes not only business enterprises but natural
persons engaged in liberal or professional ac/vi/es, such as lawyers.

- Prohibited conducts: agreements and concerted pracTces

Art.1 of the Act, which basically mirror art. 101 (1) of the Treaty on the Func/oning of the
European Union (TFEU), prohibits all agreements, collec/ve decisions or recommenda/ons, or
concerted or consciously parallel prac/ces, which have as their object, produce or may
produce the effect of preven/on, restric/on or distor/on of compe//on in all or part of the
na/onal market . It also includes an indica/ve list of types of agreements which may be
covered:

a) The direct or indirect fixing of prices or any other trading or service condi/ons; b) The
limita/on or control of produc/on, distribu/on, technical development or investment; c) The
share-out of the market or sources of supply; d) The applica/on, in trading or service
rela/onships, of dissimilar condi/ons to equivalent transac/ons, thereby placing some
compe/tors at a disadvantage compared with others; e) The subordina/on of the conclusion of
contracts to acceptance of supplementary obliga/ons which, by their nature or according to
commercial usage, have no connec/on with the subject of these contracts.

The term agreement as used in art.1 is a very broad construc/on and it is not interpreted so
narrowly as under contract law. The minimum requirement for there to be an agreement is an
expression of a joint inten/on of the par/es involved to conduct themselves on the market in a
specific way, the object or effect of the conduct being the preven/on, restric/on ort distor/on
of compe//on.

Clear examples of agreements would be wriSen contracts but there can be brought within this
category other less formal means of coopera/on such as been held: a gentlemen’s agreement;
an agreement drawn up but never signed but nevertheless applied by both par/es; an
understanding which was never reduced to wri/ng at all; an oral agreement; the adop/on of
common rules; an agreement between two trading associa/ons on behalf of their members;
standard terms of sale used by a manufacturer; a compromise of li/ga/on, though the status of
consent orders in unclear.

The category of concerted prac/ces or parallel behaviour is intended to catch all those
an/compe//ve prac/ces that do not fall within the defini/on of an agreement or of a decision
by an associa/on of undertakings, but which s/ll involve collusion between undertakings. A
common example is the mutual exchange between compe/tors of informa/on such as sales
figures, prices, discounts or others terms of supply which leads them to align their terms of
supply, even though they do not agree with each other what their terms of supply will be.
Other loose form of coopera/on between undertakings .A concerted prac/ce can be defined as
a form of coopera/on between undertakings, which, “without having reached the stage where
an agreement properly so called has been concluded, knowingly subs/tutes prac/cal
coopera/on between them for the risks of compe//on”. A concerted prac/ce is dis/nguished
from an agreement by the absence of a plan.

Decisions by associa/ons of undertakings are also included in the prohibi/on. It covers

agreements between the members of the associa/on and recommenda/ons issued by the
associa/on. Binding and not binding recommenda/ons may be caught by art. 1 as those
recommenda/ons are likely to affect the behaviour of associa/on members. Associa/ons are
ohen uses as a vehicle through which undertakings in a specific industry coordinate ac/on. Art.
1 also applies to agreements between such associa/ons.

1. Object of the pracTce

Two condi/ons must be fulfilled for a prac/ce to be prohibited: 1) have the object, produce or
may produce the all or part of the na/onal market and 2) prevent, restrict or distort
compe//on.
It should be apparent from the wording of art.1 that an agreement may be condemned if it has
either the object or the effect of preven/ng, restric/ng or distor/ng compe//on. The
requirements of object or effect of restric/ng compe//on are alterna/ve not cumula/ve. It is
not necessary for the agreement to have produced the effect, it will be equally void if it has the
object to produce it.

As to the effect, preven/on refers to the elimina/on of compe//on or the preven/on of its
occurrence; restric/on means limi/ng compe//on geographically, quan/ta/vely or generally
to render it less effec/ve; and distor/on means to change the field of opera/on so as to place
the par/es in an unequal posi/on.

2. ProhibiTons of the pracTce

Art. 1. 2 reads: any agreements, decisions and recommenda/ons that, being prohibited by
virtue of the provisions in Sec/on 1, are not covered by the exemp/ons set out in this Act are
automa/cally void.

3. ExcepTons and exempTons

The act permits that certain prac/ces may be permiSed even though they fall within the
prohibi/on. There are two different types of authorised prac/ces: those which are authorised
individually and block exemp/ons given to certain categories prac/ces.

For the individual cases the act establishes, in art. 1. 3 that certain agreements or prac/ces can
be authorised and allows the prohibi/on to be declared inapplicable to an agreement or
concerted prac/ce on account of its beneficial effects. They must contribute to improving the
produc/on or the commercialisa/on and distribu/on of goods and services or to promo/ng
technical or economic progress, providing that: a) they allow consumers a fair share of its
benefits; b) they do not impose on the undertakings concerned restric/ons which are not
indispensable to the aSainment of these objec/ves; and c) they do not afford par/cipa/ng
undertakings the possibility of elimina/ng compe//on in respect of a substan/al part of the
products or services in ques/on.

For the block exemp/ons, art. 1.5 says that the Government may also declare through a Royal
Decree the applica/on of Sec/on 3 of this ar/cle to certain categories of conduct, prior report
by the Compe//on Council and the Na/onal Compe//on Commission connec/on with the
subject of these contracts.

Together with these two forms of excep/ons Ar/cle 4 permits that certain conducts may be
exempt by law.
4. De minimis rule
Following the EU Treaty the Spanish legislator has taken the point that it is convenient to
remove from applica/on of the ar/cle those agreements where the market shares of the
par/es concerned was only minimal. And so, in art. 5, it is said that The prohibi/ons included in
Ar/cles 1 to 3 of this Act shall not apply to conduct which, due to their scant importance, are
not capable of significantly affec/ng compe//on. The criteria for demarca/ng conduct of
minor importance shall be determined according to regula/ons, taking into account, among
others, the market share.
- Abuse of dominant posiTon
The Compe//on Act prohibits, in art. 2 any abuse by one or more undertakings of their
dominant posi/on in all or part of the na/onal market. The ac/ons of business that have a
market power can have serious effects on the opera/on of a market and the ar/cle is directed
at the ac/vi/es of a powerful single business which is not subject to effec/ve compe//on. An
undertaking in a dominant posi/on may use its market power in such a way that may distort
compe//on: that’s the reason of the prohibi/on. The sanc/on is not directed to the dominant
posi/on by itself, but to the abuse of it.

The act does not define the no/on of abuse but lists a series of conducts that may cons/tute
abuse and which may consist in : a) The direct or indirect imposi/on of prices or other unfair
trading or services condi/ons; b) The limita/on of produc/on, distribu/on
13
or technical development to the unjus/fied prejudice of undertakings or consumers; c) The
unjus/fied refusal to sa/sfy the demands of purchase of products or provision of services; d)
The applica/on, in trading or service rela/onships, of dissimilar condi/ons to equivalent
transac/ons, thereby placing some compe/tors at a disadvantage compared with others; e)
The subordina/on of the conclusion of contracts to acceptance of supplementary obliga/ons
which, by their nature or according to commercial usage, have no connec/on with the subject
of these contracts.

The prohibi/on set out in this ar/cle shall even be applied in those cases in which the
dominant posi/on in the market of one or more undertakings has been established by legal
provisions.

Merger control
The principal focus of merger control concerns the poten/al compe//ve consequences which
may arise as a result of the increased concentra/on in a market caused by a merger. On one
hand, the primary benefit which a merger can bring is to improve the efficiency of the
companies involved, par/cularly when there are economies of scale which can only be
achieved by a merger. Efficiency can also be enhanced by beSer management or easier access
to capital resul/ng from a merger On the other hand, concluding a merger the poten/al
reduc/on in compe//on may result. But there can also be objec/ons as to the size and power
of the merger firm, the possible detrimental effect on the balance of payments, or the transfer
of control of a company into foreign ownership.
Merger control is regulated in arts. 7 to 10 of the Compe//on Act. The act does not use the
term merger but refers rather to “control of concentra/on” It covers all concentra/ons, not
only full mergers in a commercial sense but concentra/ons whether through the acquisi/on of
shares or assets, where an undertaking acquires control over another undertaking. Some joint
ventures are also consider to be concentra/ons.

Art. 7 defines concentra/on; 1. For the purposes set out in this Act, an economic concentra/on
shall be deemed to arise when a stable change takes place of the whole or part of one or more
undertakings results from: a) The merger of two or more previously independent undertakings,
or b) The acquisi/on by an undertaking of control of the whole or part of one or more
undertakings. c) The crea/on of a joint venture and, in general, the acquisi/on of the joint
control of one or more undertakings, when they perform on a las/ng basis the func/ons of an
autonomous economic en/ty.
The system of control is based on a series of no/fica/ons to the Na/onal Commission of the
intended concentra/on.

Art. 9 obliges the undertakings involved in concentra/ons that fall under the scope of
applica/on of the act to no/fy to the Na/onal Compe//on Commission prior to their
implementa/on. This economic concentra/on cannot be executed un/l the express or tacit
authorisa/on of the Administra/on has been issued is execu/ve under the terms set out in
Ar/cle 38, except in case of lihing of the suspension.

The next step is the process, regulated in art. 55 to 60, that the Na/onal Commission should
follow to authorise the concentra/on, subordinate it to the fulfilment of certain commitments
proposed by the no/fying par/es or condi/on or even prohibit it.

When the Na/onal Compe//on Commission prohibits a concentra/on or makes it subject to

the fulfilment of commitments or condi/ons shall not be effec/ve or execu/ve and shall not
bring the administra/ve procedure to an end, the concentra/on should be referred the
Minister of Economy and Finance, which in some cases may refer the concentra/on to the
Council of Ministers. The Council of Ministers may adopt a decision on the concentra/on that
confirms the resolu/on of the Council of the Na/onal Compe//on Commission, this is
prohibi/on or fulfil certain condi/ons, or authorise the concentra/on and the condi/ons
imposed on it. Na/onal Commission of Compe//on

State Aid
All States give assistance to industry as part of their plans to develop certain sectors of the
economy which may be in crisis or to subside enterprises with special difficul/es. But these
aids may jeopardise the level compe//ve playing field for undertakings throughout the
Community. The premise is that the compe//on rules could be fu/le if Member States could
favour their own home-based companies by subsidising their ability to compete or by using
subsidies to aSract investments.

State Aid is enforce at EU level by EU Commission. The specific provisions for State aid granted
by Member States are arts. 107-108 which are directed to undertakings and art. 109 that
enacts the Council to determine the condi/ons in which Ar/cle 108(3) shall apply and the
categories of aid exempted from this procedure.
- The Spanish legisla/on dedicates art. 11 LDC to State Aid, only establishing the powers of the
CNMC to study and analyse the “the criteria for awarding public aid in rela/on to its possible
effects on the maintenance of effec/ve compe//on in the markets with the aim of: .a) Issuing
reports with regard to the systems of aid and individual aid. b) Addressing to the Public
Administra/ons proposals leading to the maintenance of compe//on.

State aid is a poten/al danger for compe//on, but the prohibi/on in the Treaty is not absolute
or uncondi/oned. State aids have also posi/ve aspects and may be vital in certain cases to
contribute to the correc/on of the market imperfec/ons.
Art. 107 sets out the primary rule that “any aid granted by a Member State or through State
resources in any form whatsoever which distorts or threatens to distort compe//on by
favouring certain undertakings or the produc/on of certain goods shall, insofar as it affects
trade between Member States, be incompa/ble with the common market”.
- State Aids have been held to be cons/tuted by assistance from State subsidies and capital
injec/ons, exemp/ons from taxa/on, and loans guarantees by the State. Art. 107(1) requires
the following criteria to be fulfilled in order for the prohibi/on to apply. The State assistance
must: - confer and advantage; - be granted by a member State or through State resources; -
favour certain undertakings or the produc/on of certain goods; and - affect trade between
Member States or through State resources.

Art. 108.3 provides that any aid must be no/fied prior to being paid. This is known as the
“stand s/ll clause”. The aid must not be implemented before a Commission decision under Art.
108.2 is made as to the compa/bility of the aid. Accordingly, any aid must be no/fied and not
put into effect before the Commission has approved it.

The NaTonal Commission of Markets and CompeTTon (CNMC)

The CNMC is a Public Law ins/tu/on with its own legal personality and full public and private
capacity, aSached to the Ministry of Economy and Finance, which shall exercise efficacy control
over its ac/vity. The CNMC shall develop its ac/vity and fulfil its aims with organic and
func/onal autonomy, fully independent of the Public Administra/ons, and subject to this Act
and the rest of the legal system.
Its func/ons are: a) to apply the provisions of this Act in terms of conduct restric/ve of
compe//on, without prejudice to the competences that correspond to the autonomous
compe//on bodies within their respec/ve region and those of the competent jurisdic/on; b)
to apply the provisions of this Act in terms of economic concentra/on control.

Together with these main func/ons the CNMC is the Spanish Authority to apply EU compe//on
rules and to apply the mechanisms of coopera/on with other Na/onal Authori/es of the
Members States of EU and with the European Commission. Within the Na/onal Territory it has
also the power of coordina/on of the competences of the State and Autonomous Communi/es
regarding Compe//on Defence.

In addi/on, the CNMC shall act as consulta/ve body on ques/ons rela/ng to compe//on. In
par/cular, it may be consulted in maSers of compe//on by the Legisla/ve Chambers, the
Government, the various Ministerial Departments, the Autonomous Communi/es, the Local
Corpora/ons, the Professional Bodies, the Chambers of Commerce and the business or
consumer organisa/ons.

Procedural rules
The infrac/ons of the Act must be carried out in a process handled by the Commission of
Compe//on. It is an administra/ve process that begins either ex officio by the Directorate of
Inves/ga/on, be it on its or by a complaint made by any natural or legal person, interested or
not.
The process is divided in two phases. The firs is the phase of inves/ga/on and clarifying the
facts. This part of the proceeding is handled by the Directorate which has the broader power of
inves/ga/on. The second phase is the resolu/on before the Council of the Na/onal
Commission.
The resolu/ons of the Council of the Na/onal Compe//on Commission may declare the
existence of conduct prohibited (by this Act or by Ar/cles 101 and 102 of the (TFEU), the
existence of conduct of minor importance or the existence of prohibited prac/ces not being
accredited.

The consequences of the infrac/on may include: an order of cessa/on of the prohibited
conduct in a specific period; the imposi/on of specific condi/ons or obliga/ons, be they
structural or of behaviour; the order of removal of the effects of the prohibited prac/ces
contrary to the public; the shelving of the proceedings in the cases foreseen in this Act or any
other measures whose adop/on is authorised by this Act, and, of course, the imposi/on of
fines.

Fines are calculated taking into account the importance of the infringement and the total
turnover of the infringing undertaking, and shall be set in the light of certain criteria such as
the dimension and characteris/cs of the market affected by the infringement; or the market
share of the undertaking or undertakings responsible; or the scope or the dura/on of the
infringement; or the effect of the infringement on the rights and legi/mate interests of
consumers or on other economic operators.

Fines may be imposed also to the representa/ves undertaking in the case of companies or
other legal persons. The extension of the fine to be adopted must have been proved that the
representa/ves have been an ac/ve par/cipant in the decision to adopt the an/compe//ve
agreements or prac/ces.

Leniency program
Ac/on against cartels is a specific type of an/trust enforcement. A cartel is an illegal secret
agreement concluded between compe/tors to fix prices, restrict supply and/or divide up
markets. The agreement may take a wide variety of forms but ohen relates to sales prices or
increases in such prices, restric/ons on sales or produc/on capaci/es, sharing out of product
or geographic markets or customers, and collusion on the other commercial condi/ons for the
sale of products or services.

Instead of compe/ng with each other, cartel members rely on each other's agreed course of
ac/on, which reduces their incen/ves to provide new or beSer products and services at
compe//ve prices. As a consequence, their clients (consumers or other businesses) end up
paying more for less quality.

This is why cartels are illegal under EU compe//on law and why the European Commission
imposes heavy fines on companies involved in a cartel. Since cartels are illegal, they are
generally highly secre/ve and evidence of their existence is not easy to find.

The fight against cartels includes the 'leniency policy' which encourages companies to hand
over inside evidence of cartels to the European Commission. The first company in any cartel to
do so will not have to pay a fine. This results in the cartel being destabilised. In recent years,
most cartels have been detected by the European Commission aher one cartel member
confessed and asked for leniency, though the European Commission also successfully con/nues
to carry out its own inves/ga/ons to detect cartels.
Spain has also adopted the leniency program and regulates it in art. 65, 66 and 67 of the Act.

An undertaking can exempt from the payment of the fine if it is the first to provide with
evidence that, in the Na/onal Compe//on Commission view, enables it to order an inspec/on
in rela/on to a cartel or enables the Commission to verify an infringement of Ar/cle 1 in
connec/on with a cartel, providing that, at the /me of its provision, the Na/onal Compe//on
Commission does not have sufficient evidence to order the inspec/on or to find the
infringement.

However, there can only be one to be the first and get the exemp/on of the total amount of
the fine, but other undertakings which provide to the Commission with evidence of the alleged
infringement which represents significant added value can benefit of a reduc/on of the fine.
An so the 1st in providing this extra informa/on to the Na/onal Commission may get a
reduc/on from 30 to 50% of the fine, the 32nd from 20 to 30% and the subsequent up to 20%
of the amount of the fine. The “added value” must be appreciated by the Commission.

3. UNFAIR COMPETITION
The regula/on of Spanish Unfair Compe//on Law is Ley 3/199, de Competencia Desleal (Unfair
Compe//on Act), to be completed with Ley 34/1988 General de la Publicidad (Adver/sing Act).

The purpose of the law is "the protec/on of compe//on in the interests of all those who
par/cipate in the market". The law dis/nguishes between two types of unfair conduct:
f) "Acts of unfair compe//on", which include most of the acts of unfair conduct recognized in
the earlier statute and affect companies and professionals as well as consumers.
g) "Commercial prac/ces with consumers and users".

The no/on of unfair compe//on can be found in art. 4 LCD that establishes that any conduct
objec/vely contrary to good faith is deemed to be unfair. In addi/on, the ac/on must have a
compe//ve purpose; this must be understood in the sense that the ac/on is objec/vely
capable for compe//ve advancement.

Prac/ces with consumers shall be unfair when

a) The ac/on directed towards consumers is contrary to "professional diligence" (understood
as the level of compe//on and special care expected from a businessman in accordance with
honest market prac/ces)
b) The ac/on distorts or is capable of distor/ng the economic behaviour of the average
consumer in a significant manner ("economic behaviour" being understood as a consumer's
decision to select an offer, contract for or retain a product or service, pay a price or exercise his
contractual rights).

In connec/on with the general clause several individual causes of ac/on are regulated in
ar/cles 6 to 18 and from 19 to 31 as for prac/ces with consumers and users. Anyway, the cases
included in the act are but mere examples and any other ac/on can be reputed unfair even
though it is not included in the act if it fulfils the condi/ons of being against good faith and
have a compe//ve purpose.
Acts of unfair
a) misleading acts (art.5)
b) misleading omissions(art.7)
c) acts of confusion (art. 6)
d) aggressive acts(art.8)
e) acts of denigra/on (art. 9)
f) acts of comparison (art. 10)
g) imita/on (art.11)
h) exploita/on of a third party’s reputa/on (art.12)
i) viola/on of trade secrets (art.13)
j) incitement to breach of contract (art. 14)
k) infringement of laws(art.15)
l) acts of discrimina/on (art. 16)
m) selling at a loss (art. 17)
n) unlawful adver/sing(art.18)

Commercial pracTces with consumers

a) Misleading prac/ces by reason of confusion on the part of consumers (art. 20)
b) Misleadingprac/cesregardingcodesofconductorotherqualitymarks(art.21)
c) Bait prac/ces and misleading promo/onal prac/ces (art. 22)
d) Misleading prac/ces as to the nature and proper/es of products or services, their
availability and aher-sales services (art.23)
e) Pyramid sale prac/ces (art.24)
f) Misleading prac/ces by reason of confusion (art.25)
g) Covert commercial prac/ces(art.26)
h) Other misleading prac/ces(art.27)
i) Aggressive prac/ces by reason of coercion (art. 28)
j) Aggressive prac/ces by reason of harassment (art. 29)
k) Aggressive prac/ces in rela/on to minors (art.30)
l) Other aggressive prac/ces (art. 32)

Remedies
Ar/cle 32 establishes, both for unfair compe//on behaviors and unlawful adver/sing
behaviors, the following procedural ac/ons that can be taken:
a) Declaratory ac/on for bad faith.
b) Injunc/onagainsSheunfairconductorprohibi/onofitscon/nuedprac/ce.An
injunc/on may also be brought to forestall the prac/ce before it occurs.
c) Ac/on to counter the effect produced by the unfair prac/ce.
d) Ac/on to rec/fy misleading, incorrect or false informa/on.
e) Ac/on to compensate damages sustained though unfair prac/ce in the event of
fraud or fault on the part of the agent.
f) Ac/on against unjust enrichment, which shall only apply when the unfair prac/ce prejudices
a legal posi/on protected by an exclusive right or some other of similar economic content.

In favourable rulings regarding the ac/ons envisaged in the foregoing subsec/ons 1 to 4 the
court may, at the defendant’s cost, order the complete or par/al publica/on of the judgment
or, if the repercussions of the infrac/on are liable to be enduring, of a rec/fying statement.
 LESSON 5 – ON COMPANIES

1. INTRODCTION
A business company is an organiza/on created by a contract by which two or more persons
reach a covenant to place goods, to obtain a profit.
A double aspect: contract, the and the organiza/on, the consequence.
Shall have legal personality in all its acts and contracts.

Types of business companies

Only the types of companies specifically recognized by the law can be business companies.
Business are incorporated by adop/ng one of the following forms:
a) General partnership;
b) Limited or limited liability partnership; c) Public limited company;
d) Private Limited Company.

The Private Limited Company – or Corpora/on has been by far the most commonly used form,
whereas the limited partnership has been rarely used. The limited liability company has gained
popularity as a result of its comprehensive regula/on and a lower minimum capital
requirement than that for S.A. 's.

As varia/ons on the above corporate forms of S.A. and S.L.

a) the new limited liability company, as a varia/on on the S.L., specially intended for small and
medium-sized companies that simplifies the requirements for its forma/on;
b) the European public limited-liability company as the possibility offered by EU legisla/on to
companies that operate in various Member States to create a single company capable of
opera/ng in the EU in accordance with a single set of rules and a unified management system.

Lastly, the professional services firm the purpose of which is the common pursuit of a
professional associa/on ac/vity, which may be formed in accordance with any of the corporate
forms legally established under their specific legal provisions.

The Spanish legisla/on envisages the following types of business companies

a) General Partnership
b) Limited Partnership
c) Limited Partnership by shares
d) Corpora/on or company
e) Limited Liability Company
f) New Limited Liability Company
g) European Public Limited Liability Company
h) Professional Services Firm
CharacterisTcs of Spanish companies
Both the S.A. and the S.L. are companies with capital in which the liability of shareholders is
generally limited to the amount of capital contributed by each.

i) Liability is not limited in a general partnership (S.R.C.). General partners are personally jointly
and severally liable with the whole of their net worth for the debts of the partnership.
j) A limited partnership is a partnership in which there is at least one general partner and one
or more limited partners. Limited partners are only liable for the amount of capital they
contribute or promise to contribute to the partnership. The capital of limited partnerships may
be divided into par/cipa/on units or shares.
k) The professional services firm (S.P.), without prejudice to the liability of the members in
accordance with the rules of the corporate form adopted, the professional members will be
jointly and severally liable with the firm for its professional acts, and they will be subject to
such general rules on contractual and non-contractual liability as may apply.

Basis LegislaTon on companies

Basic sources of law:
- The Commercial Code
- Capital Companies Law, cons/tutes the basic legal text that regulates the various legal forms
of capital companies envisaged in Spanish law.
- Law on Structural Changes in Trading Companies which regulates business restructuring
processes under current commercial law prac/ces, including changes in corporate form.
- Law on Professional Services Firms, which regulates the forma/on of commercial
undertakings by members of professional associa/ons.

2. FORMATION OF COMPANIES
Before commencing their opera/ons, all business companies must record their incorpora/on,
terms and condi/ons in a public deed that shall be presented for inscrip/on at the Business
Registry. All companies should be registered.

Even though a company is not registered it can exist. Only certain types of companies require
to be registered for its legal existence in their specific type. If one company has failed to fulfill
the full incorpora/on it s/ll exists as a company but will only be recognized as an “irregular”
partnership and its regula/on will be that of the general partnership.

The absence of full incorpora/on may be due to the fact that the incorpora/on process is not
yet finished. When this happens, the law provides a solu/on in order to establish the legal
regime of liability for the company and for partners and shareholders and whosoever has
performed acts or concluded agreements on behalf of the company.
3. EFFECTS OF INCORPORATION
Legal personality
Once the business company is incorporated, it shall have legal personality in all its acts and
contracts. The separate legal personality means that the company is recognised as a dis/nct
person from its members: it is a legal person.

Effects of the legal personality:

- The company created is a new subject of rights and obliga/ons with full legal capacity in both
internal aspects of the company and external rela/onships with third par/es.
- The company is recognized as being a trader or business. From this moment it will have all the
rights and du/es of a trader. All companies must state in their documents and commercial
correspondence the iden/fica/on data resul/ng from registra/on in the Mercan/le Register.
- The company is the owner of the businesses assets and has economic autonomy from its
members. However the Spanish system makes a dis/nc/on between companies. While capital
companies have full autonomy and partners and shareholders won’t be responsible for the
debts of the company, partnership members can be liable if the company assets are not
enough to pay its debts.

Company name, registered office, naTonality.

Different types of companies have different rules for the composi/on of their name.
However, there are some general rules.

Companies may only have one name. The company name must not be the same as any other
previously exis/ng neither shall suggest connec/on with others by using terms or expressions
leading to confusion. The name cannot be similar to those used by official ins/tu/ons,
government or local authori/es. Obviously the name cannot include terms or expressions that
are contrary to law, public order or morality.

The registered office is the company’s legal address. The company is free to choose the legal
address within the Spanish country and it can be either the main place of business ac/vi/es or
the place where the administra/on is held.

The na/onality determines the law governing the company. “All corporate enterprises with
registered offices on Spanish soil, irrespec/ve of the place of forma/on, shall be Spanish and
subject to this act”.

Lifing the veil of legal personality.

The principle of a company having its own legal en/ty, separate from its members, means that
only the company is responsible for its liabili/es and shareholders are protected by the veil of
incorpora/on. The shareholders are hidden from view and protected from incurring liabili/es.
However, there are circumstances where it is necessary to lih the veil and treat the business as
if it were being run by its individual members. Lihing the veil may be authorized by a court that
will look behind the façade in a number of different circumstances, including if the company is
being used for a fraudulent purpose to evade legal responsibili/es. It is important to no/ce
that lihing the veil of personality is excep/onal and shall be used only in excep/onal occasions.
 LESSON 6 – PARTNERSHIPS

1. INTRODUCTION
Partnership is a fundamental form of Business/commercial organiza/on, which is born of a
contract between two or more individuals who carry on a business in common with a view of
profit. May include every trade occupa/on or profession.

Is an organiza/on in its own right with a separate legal personality.

Three different types of partnership: general partnership (sociedad colec/va), limited

partnership (sociedad comanditaria) and limited partnership by shares (sociedad comanditaria
por acciones).

A general partnership is the one in which partners are personally jointly and severally liable
with the whole of their net worth for the debts of the partnership and take part in the
management of the business.

A limited partnership is a partnership in which there is at least one general partner and one or
more limited partners. Limited partners are only liable for the amount of capital they
contribute or promise to contribute to the partnership. Capital divided into par/cipa/on units
or shares.

2. GENERAL PARTNERSHIP
FormaTon of a partnership
It is created by an agreement between partners and it is known as a memorandum or ar/cles
of associa/on. Drawn up in a formal deed. Formali/es:
a) - proper name and residence (address) of the partners
b) - business name
c) - name of the partners appointed for the management of the partnership d) - contribu/ons
of the partners to the capital of the partnership
e) - dura/on of the partnership
f) - remunera/on to be paid, if so, to partners who are involved in the running of the business
g) - Any other kind of condi/ons the partners want to establish.

Business name
Shall include the proper name of one or more partners, which must be followed by the words
“y compañia”.
Forbidden to include the names of other individuals who are not partners and, on doing so,
those whose name is included in the business name shall have unlimited joint liability for the
debts of the partnership.

AlteraTon of the partnership agreement

Just as a consensual nature of the partnership rela/onship allows the par/es to make the
agreement in such terms as they wish, so are they equally free to alter those terms at a later
date. The decision to alter the terms shall be taken by unanimous agreement of the partners.
The relaTonship between partners: rights and duTes of the partners
DUTIES:
- ContribuTon
In capital or in work. contribu/ng with capital capital partners, contributed with work,
industrial partners. Specific treatment (industrial partners) rela/ng to profits and the
prohibi/on of compe//on.
- No compeTTon with the partnership
Partners shall not compete with the partnership business without the consent of the other
partners. Who infringes the prohibi/on shall be liable to account to the partnership for any
profits made in the course of that business. Prohibi/on is hard for “industrial partners”. The
infringement of the prohibi/on permits the other partners are en/tled to rescission of
partnership agreement and the expulsion of the partner.

RIGHTS:
Take part in the management of the business.

Main characteris/c of the internal rela/on between partners is the possibility for all the
partners to take part in the management of the business.

In the event of not having appointed any partner for the management of the business, all of
them shall hold separately power but when present, agreement between managers shall be
necessary.

Being appointed in the memorandum one or more partners for the management of the
business, the dismissal of any of them is not possible, and the partners can only appoint a co-
manager to control the transac/ons of the first. Also claim for the dissolu/on of the
partnership. If the dissolu/on is not possible.

Managers may or may not be partners if such a condi/on is specified in the memorandum.

If the administra/on had not been given to a partner, all of them would have the power to
contribute to the management of common issues and the partners need to agree to contracts
and obliga/ons which are of interest to partnership. If there are partners who are responsible
for managing, the other shall not interfere in their management.

There is a general duty not to make a personal profit from a fiduciary posi/on. Partners are not
supposed to use partnership property for their own personal benefit or gain and must account
to the firm for any benefit obtained without consent from any transac/on concerning the
partnership and are responsible and have to indemnify the firm for any damage caused by
malice, abuse of power or gross negligence. A partner has the right to be indemnified by the
firm for any liabili/es incurred or payments made in the course of the firm’s business.
- Fundamental rights of every shareholder (ques/on last year)

A partner is not generally en/tled to receive any salary for ac/ng in the partnership business,
but it is not unusual for the agreement to provide for the payment of a salary to par/cular
partners before the determina/on of the profits.
- Right to informaTon
All partners are en/tled to have access to the partnership’s books.
- Right to share profits
Profits and losses of capital are not to be shared equally by the partners, what is reasonable if
we think that contribu/ons to the capital of a firm may not be equal. Unless express provisions
in the partnership agreement, the sharing of profits shall be divided in propor/on to the
partner's interest in the partnership. The industrial partner shall receive the same as the minor
capital partner. Losses shall be shared in the same propor/on as the profits. However, the
industrial partner won’t have to pay for them.

The relaTonship between Partners and third parTes

- The authority of partners to bind the firm
The power to represent the partnership may be given to one or more partners and the
partnership agreement may expressly limit the faculty to use the firm’s name and only the
partners who are especially authorized to contract on behalf of the partner can bind the
partnership with their transac/ons.
The partnership shall not be bound by the acts of any partner not authorized to represent the
firm, even though these transac/ons are conducted in the name of the partnership, and the
partner doing so shall be responsible for his acts.
- Partners Liability
All the partners in a partnership shall have unlimited joint liability for the debts of the
partnership.
Every partner is responsible for the full amount of the firm’s liability. Outsiders have the choice
of taking ac/on either against the fir or against the individual partners. A partnership’s
creditors may not pursue payment of the debts of the partnership against a partner un/l aher
having fruitlessly given the partnership formal no/ce to pay by extra-judicial means.
Where damages are recovered from one partner only, the other partners are under duty to
contribute to the amount paid in propor/on to the partner’s interest in the partnership.

DissoluTon
- Grounds of dissoluTon
Number of possible reasons for bringing a partnership to an end.

Dissolu/on:
The expiry of a fixed term or the comple/on of a specific enterprise which was the purpose of
the partnership. In this case the partnership shall be wound up unless the partners agree to
con/nue aher the pre-set limit and a new partnership is created.
a) en/re loss of the capital
b) liquida/on of the partnership declared insolvent
c) death of one of the partners. Should it have been specified in the
agreement that, in the event of the death of one of the partners, the partnership should
con/nue with their heir or only with the surviving partners
d) When any of the partners who is a manager suffers from mental incapacity or any other
permanent incapacity where the partner is no longer able to manage his affairs.
e) When a partner, declared insolvent under the insolvency, acts into the liquida/on process.
f) If the partnership is of indefinite dura/on, it can be brought to an end by any of the partners
giving no/ce of an inten/on to dissolve the partnership
For the rescission of the contract and the partnership shall be par/ally dissolved when a
partner breaches the partnership agreement in such cases as not contribu/ng to the capital of
the partnership, misappropria/on of funds, infringe the duty of no compe//on, when there is
an extended absence from the business, or when a partner who is not a manager interferes in
the facul/es of the managers.

The legal personality of the company shall con/nue, for the purposes of the liquida/on, un/l
the company is closed. The dissolu/on of the partnership should be registered with the
Mercan/le Register Office.

Aher the dissolu/on the authority of the partners authorized to bind the firm con/nues.
Partners cannot, however, enter into new contracts.
- LiquidaTon
Upon dissolu/on, the partnership shall start being liquidated. Proceeds in the following order:
Paying debts to outsiders; paying to the partners any advance made to the firm beyond their
capital contribu/on, paying the capital contribu/on of the individual partners.
Liquidators shall be responsible, with regard to both the company and third par/es, for the
harmful consequences of the errors commiSed thereby in fulfilling his du/es.

3. LIMITED PARTNERSHIP
Limited partnership is a form of partnership, where in addi/on to an at least one general
partner, there are also limited partners. General partners, in the same legal posi/on as
partners in general partnership: they have management control, share the right to use
partnership property, share the profits of the firm in predefined propor/ons, and have joint
liability for the debts of the partnership.

At the present moment the importance of this type of partnership is very liSle because of the
existence of companies, which have become more and more aSrac/ve for business because of
the lack of liability of the partners and the facili/es given to partners for the transfer of shares.

FormaTon of the partnership

In the memorandum shall include the proper names of the general partners, the name of the
company can only be compound by the name of the general partners and the management
and representa/on of the partnership can only be realized by the general partners.

AlteraTon of the partnership agreement

The terms of the agreement of the partnership can be altered by the partners at a later date.
Two different situa/ons:
1. If one or more general partners have been appointed in the memorandum for the
management of the business, the dismissal of any of them is only possible by a decision of the
Court declaring the dissolu/on of the partnership, related to the partner in the breach of his
duty.
2. Decision to alter the terms of the memorandum shall be taken by unanimous agreement not
only of the general partners but also of the limited partners.
The business name
A limited partnership shall be designated by its business name, in which may be incorporated
the names of one or more partners and which must be immediately preceded or followed by
the words “Sociedad en Comandita ” (limited partnership) or its abbrevia/on S.en C. or S. Com.
It is prohibited for the limited partners to be included in the business name and in the event of
infringement of this prohibi/on, the limited partner shall be held jointly liable with the ac/ve
partners for any debts of the partnership, with no other rights than those corresponding to a
limited partner.

RelaTonship between partners

Limited partners are obliged to contribute to the capital of the partnership. Can be made in
money or in any other kind of patrimonial assets: goods, rights, industrial property rights or
others.

The sharing of profit shall be made following the same criteria as for the general partners: they
will receive their part in propor/on to the partner’s interest in the partnership.

Only general partners have the right to par/cipate in the management of the business. A
limited partner may not carry out any act of management, even by virtue of a power of
aSorney. In the event of infringement of the prohibi/on, the other partners may claim for
damages and for the rescission of the partnership with the limited partner.

Unless there are different provisions in the memorandum, limited partners shall have the right
to obtain, once a year, communica/on of the partnership’s general accounts, partnership books
and other documents.

RelaTonship between partners and third parTes

Limited partnerships have expressly forbidden ac/ng with third par/es in the name of the firm.
Only the general partners may be authorized to bind the firms.

Limited partners shall be liable for the debts of the partnership only in respect of the amount
of their contribu/on. This may not be a contribu/on in the form of services.

DissoluTon and winding-up

Rules are in the Commercial code.

4. LIMITED PARTNERSHIP BY SHARES

The capital shall be divided into shares, and consists of the contribu/ons of the partners. At
least one of the partners shall be indefinitely and jointly liable for the partnership’s debts and
shall be the manager of the firm.
 LESSON 7 – COMPANY LAW
SOCIEDADES DE CAPITAL S.A – S.R.L (FORMATION)

The corpora/on (“S.A.”) the most commonly used type of companies in Spain due to, capital is
divided in transferable shares and absence of responsibility or shareholders for the debts of the
company, which is en/rely responsible for its debts and obliga/ons.

Some cases prefer SRL depending on commercial purpose, members interested in, number of
par/cipants, amount of capital needed to develop the purpose of the company, and flexibility
during the process of forma/on and along the whole life of the company. If the partners are
interested in a smaller company, closer rela/onship between the members of the company, an
easier opera/onal system and less expensive costs of opera/ng, it will probably be a beSer
op/on than the crea/on of a SRL. On the contrary, if we need a large amount of capital, if we
expect high mobility for the capital shares, if we want to develop one of the ac/vi/es reserved
to SA by the legisla/on the beSer op/on is an SA.

SA and SRL are regulated in the Corporate Enterprise Act.

1. BASIC CHARACTERISTICS OF S.A / S.R.L

Characteris/cs:
- SA is a corpora/on whose capital is divided into shares and shall be over €60.000. Capital
consists of contribu/ons made by shareholders. Are not personally liable for the debts of the
company.
- SRL is a company whose capital is divided into stakes and shall be over €1, it used to be
€3.000 un/l year 2022. Capital consists of the contribu/on of partners. Partners are not liable
for the debts of the company.
- No maSer the purpose of the business the company shall be a “commercial organiza/on”.
“Capital companies are commercial organiza/ons” “irrespec/ve of their corporate purpose”.

- Lack of personal liability of the members is the characteris/c that has made capital companies
the most popular type of company due to the fact that the risk of the loss assumed by them is
limited to the amount of their contribu/on to the company’s capital.
- Upon registra/on, capital companies shall become a legal en/ty. Once formed, the
corpora/on has its own dis/nct personality, separate from its members. As the corpora/on
exists in its own right, changes in its membership have no effect on its status or existence.
Members can transfer their shares to a third party without having any effect on the
con/nua/on of the business. The company is the only responsible for its debts, it is the owner
of the business and the patrimonial assets needed for it, and has contractual capacity in its
own right and can sue and be sued in its own name.
2. CORPORATE NAME, REGISTERED OFFICE, NATIONALITY
Corporate name
The Corpora/on 's name must always include the words “Sociedad Anónima” or its
abbrevia/on, S.A. SRL the company name shall always include the words Sociedad
Responsabilidad Limitada o Sociedad Limitada or its abbrevia/on SRL or SL.

Prohibits the use of a name iden/cal to that of a pre-exis/ng company.

The company name is the name of the corpora/on and it serves to dis/nguish it from other
companies. Can be an objec/ve or a subjec/ve denomina/on, but if it includes the proper
name of an individual, the consent of the individual named is needed. Name can be related to
the ac/vity of the corpora/on, but in this case it must be related to the real ac/vity of the firm.
Can also use a fantasy name as far as it does not include any terms which are contrary to the
Law.
Name shall be included in the by-laws of the corpora/on.

NaTonality
Na/onality is in rela/on to the geographical place where the company has its registered office
or its main ac/vity. “All corporate enterprises with registered offices on Spanish soil,
irrespec/ve of the place of forma/on, shall be Spanish and subject to this act”. Corpora/on
formed in a foreign country but with its principal business ac/vity in Spain can be considered
Spanish and ruled by the Spanish Law.

Registered office
Registered office is the official address at which legal documents, no/ces and other
communica/ons can be formally presented.

It is to the elec/on of the company to choose the local place of its registered office within the
Spanish territory in the place where their effec/ve management and administra/on are located
or where they have the principal business ac/vity or main economical opera/ons. In order to
avoid frauds to third par/es.

Registered office shall be included in the by-laws of the corpora/on.

3. FORMATION OF AN S.A / S.R.L
FormaliTes
The Corpora/on Law establishes a strict procedure with which corpora/ons have to comply
before they can operate legally.

First an agreement by and between two or more par/es. A corpora/on shall be created by a
notarial deed, signed by all the founding partners or shareholders, and registered in the
Mercan/le Register.

The notarial deed

The formal document which contains the circumstances of the forma/on of the corpora/on. Is
granted by a public notary and it contains the inten/on of the founders to create a corpora/on.
All the contractual aspects of the agreement, including the by-laws.

It shall contain: proper names of the founders and their formal address or registered office; a
statement of the inten/on of the founders to create the corpora/on, and specify the type of
company they want to create; the contribu/ons to the capital of each of the
shareholders/partners and the shares/stakes each of them will receive; the total amount of the
costs of the forma/on process; and the by-laws of the corpora/on. Deeds also include any valid
agreements and condi/ons that the founders deem appropriate to establish.

Corporate by-laws
Are the basic provisions governing the organiza/on of the company. Are to be treated as an
enforceable contract, though a peculiar contract, which terms can be altered by the majority of
the members.

Shall contain: name of the company; - the purpose and ac/vi/es, in a concrete and precise
manner; dura/on; loca/on of the registered office of the corpora/on, and date on which
opera/ons are to commence, cannot be earlier than the date of execu/on of the public deed
of incorpora/on.

Also contain: shared capital, shares or stakes in which the capital I divided. Case of SA, shares
the bylaws shall express the propor/on not paid-in and the number of shares in which the
capital is divided. SRL, men/on shall be made of the number of stakes into which the capital is
divided, par value, consecu/ve numbering and, where such stakes are not equal, the rights
granted thereby to their holders and the propor/on of capital owned.

Also content managing body, dura/on, and system of directors’ remunera/on; manner in
which corporate bodies are to deliberate and adopt their resolu/ons; closing date of the
general accounts.
Must be included in the by-laws, restric/ons on the free transferability of the shares in the case
of an SA or the specific rules for the transfer of stakes in SRL, ancillary obliga/ons, sta/ng the
content and whether or not they are remunerated and penal/es for breach thereof; and the
especial rights reserved for promoters or founders in SA. Also contain whatever agreements or
terms agreed as far as they do not contravene any law or the fundamental principles that
govern S.A’s or SRL.
SubscripTon and iniTal contribuTon
In SA, the shares into which the share capital of joint stock companies is divided shall be fully
subscribed by the shareholders and at least one-fourth of the par value of each share shall be
paid up by the date of formaliza/on of the company’s deed of incorpora/on or instrument on
capital increase.

Each of the first shareholders of the corpora/on is obliged to pay-in, 25% of each share, the
rest when the company calls them for pay. Fully subscrip/on of the capital and the minimum
payment of the contribu/on are condi/ons sine qua non the corpora/on is validly incorporated
and if these condi/ons are not fulfilled the corpora/on can be declared to be null.

In SRL stakes into which the capital of limited liability companies is divided shall be fully
subscribed and the par value fully paid by the partners by the date of formaliza/on of the
company’s deed of incorpora/on or instrument on capital increase.

RegistraTon in the MercanTle Register

The corpora/on receives its separate legal personality upon registra/on and the founda/on of
the company will not be finished un/l registra/on is completed. Before registra/on the
corpora/on did not properly exist, it was only a company in the process of cons/tu/on. The
birthdate of the corpora/on is the moment of the registra/on.

4. CORPORATION IN FORMATION AND FAILURE TO REGISTER

A company exists from the date of the registra/on. Prior to registra/on it is necessary to
execute the public deed, to bring it to the Register office and it has to be examined by the
Register Officer in order to cer/fy that there are no rules that contravene the Law. All the
opera/ons that are necessary for the forma/on.

5. CORPORATION INFORMATION
Is a corpora/on in which the founders had executed the public deed, but the company is not
yet registered. Lasts one year maximum.

Persons who enter into contracts are jointly and severally liable for their performance, unless
such performance was made condi/onal on the corpora/on’s registra/on and, if applicable, its
later assump/on of liability.

In some cases the corpora/on in forma/on is liable for the debts produced by them. This is the
case of those acts and contracts which are indispensable for the cons/tu/on of the company
and the case of the acts and contracts made within the powers granted to the managers in the
notarial deed.

The date of the commencement of opera/ons is the same in which the notarial deed is
granted, the managers are fully en/tled to the full development of the corporate purpose
and to perform any kind of acts and contracts within its business ac/vi/es and the corpora/on
informa/on shall be liable for them.

Once registered, the corpora/on exists as a separate person and has to assume the acts and
contracts made in its name prior to registra/on if they are included in the above men/oned.
Also assume the managers and founders ac/ons during the three months period following
registra/on. Personal liability of the managers, founders or representa/ves shall cease.

The corpora/on can assume other acts and contracts made by the managers or founders in the
three-month period aher registra/on. If not the persons who made them shall be liable for
their consequences.

Failure to register
In case that the founders have no inten/on of registering the company aher a reasonable
period, the corpora/on is no longer in forma/on but an “irregular” corpora/on.

Can be stated when the proof of the inten/on of the founders not to register exists. Aher a
one-year period from the execu/on of the notarial deed and no movement to register has
been done, it can be presumed that there is no inten/on to register.

6. TYPES OF INCORPORATION
The Law establishes two different procedures for the incorpora/on of a company:
incorpora/on in a single procedure and incorpora/on in phases.

The incorpora/on in a single procedure exists when the notarial deed is executed by all the
founders and all of them have to subscribe the whole of the shares. Subscribers of the shares
are the first shareholders and founders of the corpora/on. Are jointly liable with the
corpora/on.

The incorpora/on in phases is a procedure that involves an offering to the public at large by the
promoters to subscribe shares before the execu/on of the public deed of incorpora/on.
Promoters are liable, for the list of subscribers, the informa/on given in the program or the
authen/city of the contribu/ons.

7. NULLITY OF THE COMPANY

The lack of one or more essen/al requirements of the agreement recorded in the notarial deed
means the invalidity of the company and thus its nullity. The law establishes that once it has
been registered the company can only be declared null for the reasons established in the Law.

Nullity can be declared if the purpose of the corpora/on is illegal, if the compulsory clauses of
the statutes are not fulfilled, the legal disqualifica/on of all the founding shareholders, the lack
of consent of at least two founders or the sole member, if the case.
The main effect upon the declara/on of the nullity of a company is liquida/on. The judgment
declaring a corpora/on null and void shall lead to its liquida/on under the rules of the
dissolu/on process.
8. BRANCHES AND SUBSIDIARIES
The company may operate in Spain through a branch or a subsidiary or a representa/ve office.

A branch is a secondary establishment with a permanent representa/on and certain managing

independence, by means of which the ac/vi/es of the head office are totally or par/ally
developed, and with no legal personality independent of that of the head office.

The forma/on of a branch requires the execu/on of a public deed that must be registered at
the Mercan/le Register. Must have an assigned capital, which is not subject to any minimum
amount requirement. Must have a legal representa/ve who is empowered by the home office
to administer the affairs of the branch. There are no formal administra/on or management
bodies. Except for the obvious differences in terms of internal structure and organiza/on, a
branch operates much like a corpora/on in its dealings with third par/es. Branches shall have
their own accoun/ng referred to the transac/ons they make, and the assets assigned to them.
Shall deposit with the Mercan/le Register the head office’ annual accounts, a cer/fica/on of
their deposit in its Commercial Register or, in certain cases, the accounts corresponding to the
branch ac/vity. The managing body of the head office shall appoint a branch Director. He will
act as an aSorney in the head office in the branch. General rule is that the Director might
exercise all the ac/vi/es of the branch recorded in the Mercan/le Register. It is subject to the
limita/ons provided for in the powers of aSorney.

A subsidiary is a separate legal en/ty, a company of a commercial nature devoted to the

development of an economic ac/vity, with a capital stock divided into shares or par/cipa/on
units. Capital contribu/ons of the partners, who are personally liable for company debts only
up to the limit of the made or promised contribu/on.

A representa/ve office has no legal personality separated from that of its head office. No
mercan/le formali/es are required to open a representa/ve office. It can be necessary a public
deed to indicate the opening of the representa/ve office, funds allocated to the office, iden/ty
of their tax representa/ve. Registra/on in the Mercan/le Register is not required.

The representa/ve of the office acts under the powers granted to him/her. Ac/vi/es are
limited, coordina/on, collabora/on. Company is liable for any and all the debts of the
representa/ve office.

9. THE WEBSITE
Companies may establish websites. In the case of listed companies, websites are compulsory.
Crea/on shall be approved by the general mee/ng and shall be entered on the company’s page
in the Mercan/le Registry and published in the Official Journal of the Mercan/le Register.
Announcements concerning companies' websites must also be published in the OJMR.
The no/ces between the company and its members may be served via electronic media
providing they have consented to. Shall provide a func/on on the web page able to establish
the date of receipt of the correspondence as well as the content of the electronic messages
exchanged by the company and its partners of shareholders.
 LESSON 8 – COMPANY LAW
SOCIEDADES DE CAPITAL S.A – S.R.L (CAPITAL AND CONTRIBUTIONS)

1. CAPITAL, PRINCIPLES GOVERNING THE CAPITAL

DefiniTon
Corporate capital/ Capital of the Company: is the shared capital that shall be necessarily
contained in the by-laws of the corpora/on/company.
Represents the TOTAL amount of the contribu/ons of the members and it is a figure of assets’
reten/on and shall be included in the Debit part of the balance sheet. It works as a guaranty
for third par/es.
NOMINAL CAPITAL FIX FIGURE ESTABLISHED IN THE BY-LAWS
Real or effec/ve capital Variable full value of the whole patrimonial assets of
the company
Market value Variable

Together with the nominal capital, we have to consider the real and effec/ve capital, the net
equity of the corpora/on that is the amount of the contribu/ons of the shareholders minus the
debts of the corpora/on, which is not a fixed figure in the by-laws but a variable value. The
value of the patrimonial assets in a corpora/on changes con/nuously in the same way as it
changes their value in the market. We can say that the capital is a guarantee fund and has
ceased to be the name given to the fluctua/ng net worth of the business and has become a
rigid yards/ck fixing the minimum value of the net assets which must be raised ini/ally and
then retained in the business. To this end, corpora/on rules ensure that the corpora/on has
raised the paid-up capital and that the capital is properly used in the business and not returned
to the shareholders.

In SA the nominal capital is divided into shares. In SRL, the capital is divided into stakes. The
more shares or stakes a member owns, the more important his posi/on will be in the
organiza/on of the corpora/on.

Principles governing the capital in capital companies

The capital needs to be fixed in the bylaws of the corpora/on and it cannot be altered unless
the by-laws are altered with all the requirements needed for the amendments. The
maintenance of the capital is of the most importance.

Effec/ve correspondence: The Law insists in receiving the full capital value for the shares they
issue. Once the capital has been received by the corpora/on there are important rules
controlling what can be done or what cannot be done with it. This quota/on highlights two
aspects: first, that creditors have rights to see that the capital is not dissipated unlawfully; and,
secondly, that the members must not have the capital returned to them surrep//ously. But the
law insists as well in the maintenance of the correspondence between capital and the value of
the patrimonial assets of the company. During the ac/vity of the company it is of the most
importance that the patrimonial value of the assets of the company are always over the figure
of the nominal capital. The Law regulates several aspects for the maintenance of the capital:
accountancy, distribu/on of the profits, acquisi/ons of own shares or capital reduc/on.
Minimum capital: The minimum amount of capital stock required for an S.A. pursuant to the
Corpora/ons Law is €60,000. In case of SRL, the minimum amount is €3000. The amount of the
minimum capital must be maintained during the whole life of the company. This circumstance
is controlled, at the moment of the forma/on of the company, by the public Notary and by the
Register Officer. But the LSC also states that the capital cannot be reduced, even in the case of
gross losses of the patrimonial assets, below the legal minimum and the company must be
dissolved on this ground.

Fully subscrip/on, that means that all the capital must be aSributed to the members at the
ini/al existence of the company. About payments, in the case of SRL, the capital must be fully
subscribe and fully paid at the /me of the forma/on of the company. In the case of SA, the
capital must be fully subscribed and a minimum contribu/on 25% of the par value of the
shares) is to be paid at the /me of the forma/on of the corpora/on. This principle is called:
fully subscrip/on and minimum ini/al contribu/on. Ar/cle 79 LSC provides that no corpora/on
may be incorporated unless its capital stock is totally subscribe an at least one quarter of the
par value of each share is paid-in. Shares can be issued fully paid or partly paid. When the
shares are partly paid the sum unpaid is called the uncalled capital. The corpora/on can call in
this capital in the manner and within the limits set forth in the bylaws. When the capital stock
is not fully paid up, the bylaws must state the manner and /me period for the payment of the
remaining por/on of subscribed capital. No maximum /me period for payment of calls on
capital by contribu/ons in cash is stated in the Law but five years is the maximum term for full
payment of contribu/ons in kind.

Capital and reserves ley de sociedad de capital

Reserves are any asset held by the company over and above it capital that, consequently, have
not been distributed among members. The LSC prevents distribu/on of earnings as long as the
legal reserve and any other reserves meet the requirements imposed by the law (vid art. 273,
274). We can dis/nguish between legal reserves that each company shall establish and other
reserves that the company is free to establish in the bylaws. From another point of view, there
exists other legal reserves, that are mandatory, to cover other situa/ons, such as acquisi/on of
own shares (art. 141).
- The provision of reserves in the balance sheet is, basically, due to a couple of reasons. In the
first place, the reserva/on of part of the benefits obtained from the development of the
business ac/vity instead of alloca/ng them to dividend distribu/on and, secondly, the
revalua/on of assets when so permiSed by accoun/ng legisla/on. What happens, in the laSer
case, is that the so-called tacit capital gains arise and they usually come from the combined
applica/on of accoun/ng principles and infla/on.

2. CONTRIBUTIONS TO THE CAPITAL

Types of contribuTons
The subscrip/on of shares or stakes carries the obliga/on to contribute to the capital of the
company. Contribu/ons can be in cash or in kind, that are liable to economic appraisal. No
other type of contribu/on can be made to pay for the capital amount and so no work or
services serve as a contribu/on to the capital.

Any shares or stakes that are not backed by a valid contribu/on to company equity shall be null
and void. In addi/on, no stakes can be created or shares may be issued for a sum lower than
their par value.
Monetary contribu/ons shall be made in Spanish currency and are to be controlled by the
public notary who will check the receipts of the deposit of the funds (art. 62, 63 y 80).
Contribu/ons in kind (art. 62-70 y 80) shall consist of patrimonial assets or money’s worth.
They must be exactly described in the notarial deed. In this sense, it is extremely important the
value that the founders give to contribu/ons in kind in order to assure the appropriate
evalua/on of the goods and to protect other shareholders or partners and third par/es from
infracapitaliza/on of the company.

In the case of SA, the law requires advice from an independent expert, appointed by the
Mercan/le Register, in order to state their value and condi/ons of payment, and the amount of
shares that the shareholders shall receive. The adviser must prepare a report that shall be
aSached to the notarial deed of cons/tu/on of the company. The importance of the report is
great, since the value aSributed to the contribu/on in the notarial deed shall not be higher
than the value es/mated by the experts. It is also important as to their liability: “Experts shall
be held liable by the company, its shareholders and creditors for any damages resul/ng from
the valua/on but shall be exonerated therefrom if they can provide evidence of having acted
with due diligence and pursuant to the standards associated with the task entrusted thereto”.

In the case of SRL, no independent expert’s report on non-monetary contribu/ons is required,

although the founders and shareholders are jointly and severally liable for the genuineness of
the non-monetary contribu/ons made. Similarly, in capital increases the directors of the
company are liable for the difference between the value of the non- monetary contribu/ons
stated in their report and the real value of the contribu/ons (art. 73-76).

Payment of contribuTons
a) As for SRL, the stakes into which the capital is divided shall be fully subscribe and their par
value fully paid by the date the moment of the forma/on of the company.
b) As for SA, shares shall be fully subscribe but not necessarily full ypaid up by the
formaliza/on of the company in the notarial deed. In these cases the company can at a later
/me make a call for the payment on those shares. That means that the shareholders are
required to provide more capital, up to the amount remaining unpaid on the nominal value of
their shares.

The SA can call for the unpaid shares in the manner and within the limits set forth in the bylaws
of the corpora/on. Where no such provision exists unpaid capital must be 3
paid upon resolu/on or decision of the managers. In this last case, the manner and term for
payment shall be published in the Official GazeSe of the Mercan/le Register (Bole/n Oficial del
Registro Mercan/l).

If a shareholder does not pay the unpaid por/on of his share within the deadline period
established for payment he will be in default. The effects of default are:
a) He cannot exercise the right to vote
b) He can not exercise pre-emp/ve rights to new shares or conver/ble bonds.
c) He won’t receive dividends un/l the payment is done if the dividends have not
prescribed.
Upon a shareholder’s default the corpora/on may:
a) Claim for payment together with the legal interest and any damages caused by the default,
or
b) Sell the shares at the expenses of the shareholder. The sale must be aSested toby a stock
broker (if shares are sold in the stock market) or by a commercial broker or public notary.
If the shares could not be sold the corpora/on shall redeem them and reduce the
corporate capital, leaving any sums already paid for benefit of the corpora/on.

3. TRANSACTIONS ON OWN SHARES/STAKES

The purchase of own shares/stakes can be seen as a major contraven/on of the capital
maintenance rules and a careful regula/on in accordance with the principle of capital
maintenance is needed. However, problems may also come from the use managers make of
the own shares that can be used for specula/on or other unlawful transac/ons. The main
thrust of the ra/onale against allowing share/stake purchase can be expressed in the form that
a proponent of the prac/ce was on the horns of a dilemma: that is, if the shares/stakes
purchased by the company were going to be resold, then this was trafficking in own capital
and, if there were not, then it was a reduc/on of capital that is unlawful because it fell outside
the statutory provisions regula/on reduc/on.

The Spanish Law establishes a very strict rule for the subscrip/on of own shares/stakes and
provides in ar/cle 134, that under no circumstances may a corpora/on subscribe to its own
shares/stakes or any created or issued by the parent company. The infrac/on for such
prohibi/on, in case of SR, makes the acquisi/on null and void. In case of SA, the act imposes
the founders, promoters or directors (in capital increase) the obliga/on to pay for the shares
involved.
- The deriva/ve acquisi/on of own capital are subject to different rules in case of SA or SL. In
SA, under certain circumstances, the law permits that the company can purchase its own
shares and regulates its consequences. Four condi/ons are to be met for the purchase of own
shares:
1.- The acquisi/on needs to be approved at the shareholders mee/ng specifying all the
circumstances of the purchase (maximum number of shares, price, the period of
authorisa/on).
2.- The par value of the shares to be acquired must not exceed the 10% corporate capital. If the
corpora/on has previously acquire other own shares, this limit of the 10% includes the new
acquisi/ons and those the company already has.
3.- The acquisi/on must allow the corpora/on to provide the reserve established in art. 148
without reducing the legal or by-laws reserves.
4.- The shares purchases must be totally paid in.
Shares acquired in viola/on of these rules should be transferred within one year from the date
of acquisi/on. If no such disposal takes place the company must immediately proceed to
redeem the shares and reduce the corporate capital.
The possibility exists for the company to acquire its own shares when the shares are to be
redeem and a reduc/on of capital been made, In this case, the company should make an offer
to the whole of shareholders and reduce the capital in the amount corresponding receivers.
Shares can also be freely acquired when the shares form part of a state acquired in it en/rely.
When the shares form part of the acquisi/on in its en/rely owned fully paid up are acquire free
of charge or acquired as a result of a court order for the payment of a debt owed to the
corpora/on for the owner of such debt.

In a similar sense, but with more limited possibili/es, arts 140-142, permits the acquisi/on of
own capital in SRL. In any case, the stakes acquired must be transferred or redeemed.
Taking charges over own shares/stakes is not permiSed in principle. However, in the case of SA
this is subject to excep/ons, principally where the ordinary business of the company included
the lending of money or the provision of credit or bailment of goods.

4. ANCILLARY OBLIFATIONS (ARTS. 86-89 LSC)

Work or services do not serve as a contribu/on to the capital of the corpora/on. However the
by-laws of the corpora/on may make it mandatory for some or all of the shareholders to make
ancillary contribu/ons apart from capital, and which shall not form part of the corpora/on’s
capital. The ancillary obliga/on is a device whereby the labour or services or other obliga/ons
of par/cular shareholders can be /ed to the corpora/on. An ancillary obliga/on then consists
of an obliga/on to perform certain acts or to refrain from performing certain acts and do not
form part of the capital stock of the company. If ancillary obliga/ons are created, the bylaws
must state the content of such obliga/ons, whether or not they are remunerated, and the
penal/es, if any, for breach thereof. The existence of ancillary contribu/ons shall be men/oned
in the share cer/ficates, which must be registered.

5. LOAN CAPITAL
Raising funds for the economic ac/vi/es of the company can be made in different ways.
Companies usually acquire the capital they need to engage in their par/cular business through
the issue of shares or stakes. In the first place, the raising of the capital and reserves, or
increasing the capital in a later moment of the life of the company.

It is, however, a common prac/ce for companies to borrow addi/onal money to finance their
opera/on. Loans may be provided simply by a company’s bank extending to it an overdrah
facility. Alterna/vely, however, the company may use special facili/es to borrow from
individuals either individual or a group. When a company needs a very large amounts of capital
to enable it to expand to the size which the directors think would be economically beneficial it
will usually need to make an offering to the public for the raising of the funds.

Companies wishing to raise debt financed from capital markets will usually do so by issuing
bonds or other securi/es. Bonds o debentures are documents what acknowledge a debt (owed
to the company by the lender), they are usually long term finance. The rela/onship between
the company and the provider of loan capital is the ordinary rela/onship of debtor /creditor,
even where specific mechanisms exist to facilitate the borrowing of companies and to secure
he interests of their creditors.
Frequently, the lender is likely to require that security is given for the loan, in order to allow
them to recover the value of the loan from the company if it defaults on its interest payments
or its final repayment. Even when the lender is given such a securi/es, it is essen/al to realise
that borrowing, even when it is secured, does not give the lender any par/cipa/on in the
company but represents a claim against the company.

Legal regime
In legal terms, a debenture is a document which acknowledges the fact that a company has
borrowed money and does not refer to any security that may have been given in rela/on to the
loan. They may also be called bonds.

Companies can raise loans from the public at large. The global sum of the loan is once again
raised from a large number of people, each of whom holds a propor/onal part of the total loan
stock. The individual lender receives a debenture stock cer/ficate, which in some way is similar
to a share cer/ficate, to the extent that such debenture stock is freely transferable and may be
dealt with on the stock market.

The Spanish Law establishes the regula/on of bonds or securi/es in art. 401-433 LSC, ar/cles
25-30 o the Securi/es Market Law and 310-319 RRM.
There are two important differences between SA and SRL.
a) The first one, in a SRL, the total amount of issued bonds may not exceed twice their own
resources, unless the issue is secured by a mortgage, a pledge of securi/es, public guarantee or
a joint and several guarantee given by a credit ins/tu/on. As for SA, the company may issue a
numbered series of bonds or debentures providing that their total value is not over the sum of
the capital paid-in plus the reserves stated in the latest approved balance sheet.
b) The second, in SA, bonds can be conver/ble, which are those that can be converted into
equity shares of the issuing company aher a predetermined period of /me or non-conver/ble,
which cannot be converted into equity shares of the liable company. Non-conver/ble bonds
usually carry higher interest rates than the conver/ble ones. In an SRL may in no case issue or
guarantee bonds conver/ble into stakes.

The issue of bonds is set out in a notarial deed containing all the informa/on about the
company, the terms of the issue and loan, such as interest to be paid and the existence of any
security, and if the bonds are to be documented by cer/ficates or book entries.

The bondholders organize themselves in an associa/on (sindicato de obligacionistas), created

aher registra/on, the basic rules of which shall be established in the notarial deed of issue. An
agent or trustee is appointed to represent and pursue the interest of individual stockholders. In
the law, the individual stockholders have no direct rela/onship with the company. Only the
agent or trustee is en/tled to represent the associa/on and take legal ac/on on its behalf. For
all maSers, the bondholders’ agent shall be the connec/ng link between the company and the
associa/on of bondholders. In this way, the individuals are relieved of the need to pursue their
own causes and the company is relieved of his need to deal with a mul/plicity of lenders.
The company may redeem issued bonds by repayment or prepayment, by purchase in the
stock market, by conversion into shares or following any other agreement between the
company and the bondholders’ associa/on. In case of repayment the company is obliged to
repay the total amount of the bonds on the date agreed, together with any other premiums,
lots and benefits provided for in the notarial deed of issue.

Differences between shares/stakes and bonds or debentures

Debentures holders are creditors of the company; they are not members as shareholders are.
As creditors, they receive interest on their loans; they do not receive dividends, as
shareholders do.
They are en/tled to receive interest, whether the company is profitable or not, even if the
payment is made out of the company’s capital; shareholders dividends may not be paid out of
the capital.
Debentures may be issued at a discount, that is, at less than their nominal value; shares must
not be issued at a discount and the company must receive the equivalent to the shares
nominal value.
 LESSON 9 – SHARES AND STAKES

1. STAKES AND SHARES

The capital is divided into stakes in SRL or shares in SA. Both, stakes and shares
cons/tute aliquot, indivisible and cumula/ve parts of the capital.

Shares and stakes are the expression of a proprietary rela/onship. Shareholders and partners
are owners of the company but do not own the company’s assets, which belong to the
company as a separate and independent legal en/ty. Shares and stakes are units of account for
measuring a member’s interest in the company (the more shares/stakes you own, the more
power you have in the company) and can be defined as “the interest of the shareholder in the
company measured by a sum of money, and made up of various rights contained in the
contract”.

Each and every share or stake grants to its lawful owner the status of partners or shareholder
and with it the rights acknowledged in the law and in the by-laws.

Stakes and shares are represented in different types of documents. While stakes are
represented by cer/ficates, shares may be represented by cer/ficates of /tle or book entries.
In both instances, shares shall be regarded to be transferable securi/es and can be marketed.
On the contrary, stakes and under no circumstances shall be regarded to be securi/es.

Shares and stakes can be seen as:

a) a part of the capital of the company
b) the representa/on of the shareholders right
c) a document

2. SHARES AND STAKES AS A PART OF THE CAPITAL

Art.90 provides that shares represent indivisible and equal parts of the capital.

The principles governing the capital of the company are also to be applied to the shares. As a
general rule, we can say that payment for shares can be only made in patrimonial assets
(money or money’s worth). Thus, the crea/on of shares/stakes that do not represent an actual
contribu/on of assets to the corpora/on shall be null and void.

The value of the share/stake can be seen taking into account several aspects. The nominal or
par value is the value established in the by-laws. It is a permanent and fixed value that can only
be altered through the altera/on of the by-laws. The account value: is the value established by
the general accounts of the company, the value in the balance sheet. The real value is the value
that represents the economic value of the assets of a company. And the market value, in case
of shares, which is the value of the share in the market, mainly in the stock market.

Not all shares/stakes in a company need to be iden/cal. We can find different series and
classes. A serie is composed by all the shares/stakes with the same nominal value. A class is
composed by all share/stakes with the same content of rights. However the law establishes
that shares shall be equal in value within the same series.
One of the principles governing the capital in company law is the one of correspondence of
capital and patrimonial assets, and in this sense the law prohibits, in art.59.2, the issue of
shares or stakes at a discount.
- We can see the strictness of the rule in the following example. In a company shares were
issued at a nominal value of 1€. The trading of shares was only 25 cents. In an aSempt to
refinance the company new preference 1€ shares were issued at 75 cents already paid so that
the new shareholders only paid 25 cents. The company was declared insolvent and
shareholders were required to pay the 75 cents leh.

It is lawful, and quite common, to issue shares a premium (acciones con prima), that is, to
charge those who take the shares more than their nominal value. In such circumstances, any
addi/onal payment received must be transferred into a share premium account, which may be
used only for limited purposes (RD 1514/2007). Being a capital reserve, the share premium
account cannot be used to finance dividend payments. The reason for the premium is on the
one hand, to enlarge the patrimonial assets of the company, and on the other, in the case of an
increasing of the capital, that the new shareholders subscribe the shares at the real value,
when it is over the nominal or par value of the share.
- In the same sense, it is permiSed the crea/on of stakes at a premium.

3. PARTNERS AND SHAREHOLDERS RIGHTS

Basic rights
Art. 91 provides that the owning of a share or stake confers the owner the status of a
shareholder or partner. In this sense, shares and stakes are a bundle of rights and liabili/es.
The basic rights of shareholders are established in art.93 and completed by the provisions of
the bylaws. The basic rights of shareholders7partners are as follows:
1. Right to take part in the distribu/on of corporate earnings. This right is, commonly known, a
right to a dividend. Although there is a general right to share profits, a shareholder would only
have a right to a dividend if the dividend is duly declared. It is possible that the general mee/ng
decides that no dividend is paid to the shareholders but the profits are used for other
purposes, such as the increase of reserves or investments. Once the dividend is declared the
shareholders are creditors of the company.

2. In the winding up of the company, aher the payment of the debts, to receive a propor/onate
part of the capital or otherwise to par/cipate in the distribu/on of the assets of the company.

3. Preferen/al right to acquire new stakes or subscribe new shares or conver/ble bonds in case
the company increases of the amount of issued capital or in case the company issues bonds or
other securi/es. Arts. 304, 305, 503, 306 LSC develop the content of this right while providing
that “In capital increases involving the issue of new ordinary or preference stakes or shares,
posted against cash contribu/ons, partners or shareholders shall be en/tled to take or
subscribe a number of stakes or shares in propor/on to the par value of their holdings prior to
the increase”. Pre-emp/ve rights are to be exercised within the period of a month aher the
date of the new subscrip/on offer (published in the Official GazeSe of the Mercan/le Register-
BORM). Pre- emp/ve rights are transferable.
4. Right to aSend and vote at mee/ngs (except non-vo/ng stock) and to challenge corporate
resolu/ons. The aSendance and vote in the mee/ng is one of the basic rights by the means of
which shareholders and partners take part in the decisions of the company. The right to aSend
and vote at the general mee/ng can be exercised personally or by a representa/ve. This is a
basic right and cannot be abolished neither by the by-laws or the general mee/ng.
- However, in SA, it can be limited and, in this sense, companies ohen require the shareholders
to hold a minimum number of shares for aSending and vo/ng at the mee/ng (art. 179.2,
188.3, 515, 189). Grouping of shares is admiSed in order to exercise this right. Limits can also
come from the requirement of the by-laws that can fix the maximum number of votes that may
be cast by any single shareholder. In addi/on, there are cases in which the right to vote cannot
be exercised: - if the shareholder has not paid the uncalled capital when called to (art.83) and -
in case the company owns its own shares (art. 148).

5. Right to obtain informa/on about the company’s affairs. The right to informa/on is
developed in art.196 in the case of SRL and 197 in case of SA.
- Art. 196 establishes that partners of limited liability companies may request in wri/ng prior to
the general mee/ng, or verbally during the mee/ng, any reports or clarifica/on that they deem
necessary in connec/on with items on the agenda. 2: The governing body shall be bound to
provide such reports or clarifica/on either verbally or in wri/ng, depending on when and what
kind of informa/on is requested, except where, in the governing body’s opinion, disclosing
such informa/on may be detrimental to the company’s interests. Informa/on may not be
withheld when requested by partners represen/ng at least twenty-five per cent of the capital.
Art. 197 provides that the shareholders may request any reports or clarifica/on they may
consider important, in wri/ng prior to the mee/ng or orally at the same mee/ng. It is also
established that any shareholder can obtain from the administrators all the documents to be
approved in the general mee/ng and the report of the auditors.

Classes and series of shares and stakes

Prima facie, all shares/stakes enjoy equal rights. However, the company can divide its capital
into shares/stales of different classes and the presump/on of equality must be specifically
displaced. According to the rights granted to the holder, a company may issue ordinary or
preference shares/stakes. Preferred shares/stakes may be created as a separate class or
classes.

Ordinary shares have no express rights conferred above the basic rights implied by the law or
the by-laws. Unless otherwise indicated, all shares issued by a company are presumed to be
ordinary shares.

Preference shares/stakes are all those that confer the holders extra rights. The extra rights for
the preference can consist of - the right to prior payment of a fixed dividend, which en/tle the
holders to a preferen/al dividend, or - the right to be repaid first on the winding up of the
company.

In any case, preferen/al shares or stakes will not be valid in the following cases: - remunerated
in the form of interest; - if they directly or indirectly alter the ra/o between their par value and
vo/ng rights or the exis/ng shareholders’ preferen/al right to subscribe new shares in capital
increases (art. 94, 96, 95 y 498)
The corporate bylaws should establish the consequences of failure to pay part or the en/re
preferen/al dividend, whether this is or is not accumula/ve as regards the unpaid dividend,
and the possible rights of holders of privileged shares/stakes in connec/on with dividend to
which the ordinary ones may be en/tled.

In case a company has issued different classes of shares or stakes, all those having the same
rights shall cons/tute one class of and where within one class of shares there are various
series, all shares or stakes within the same series shall have the same par value (art. 94.1).

Non-voTng shares or stakes

Non-vo/ng shares/stakes provide the holder very liSle or no vote on corporate maSers. This
type of share/stakes is usually implemented for individuals who want to invest in the
company’s profitability and success at the expense of vo/ng rights in the direc/on of the
company. They are only interested in the economic aspects of their investment and have no
inten/on to par/cipate in the decision making process. The most typical rights for non-vo/ng
share or stakes are iden/cal to those of ordinary ones apart from the lack of a vote and they
receive a preferen/al dividend for this reason.

The purpose of non-vo/ng shares/stakes is to allow the holders of the ordinary ones to
maintain control.
- The holders of the ordinary shares may, for instance, be founders of a company, the exis/ng
shareholders of a company (ohen a family company) that wishes to list the company in the
stock market, a company that wants the benefits of an employee shares scheme without the
exis/ng shareholders losing control.
Non-vo/ng shares are usually less valuable than vo/ng shares despite being en/tled to exactly
the same stream of dividends. There are a number of reasons why the prices should be
different: - The vo/ng shares are more valuable in a takeover bid as most bidders aim at
control, which owning non-vo/ng shares does not help achieve. - The appointment of directors
can bring an addi/onal income stream. This is most relevant for small companies, especially
family companies and those s/ll controlled by their founders. - Control can bring the ability to
make the company deal with connected par/es. Visibly abusing this brings the risks of legal
challenges from the minori/es. All these reasons should make it clear why investors have
become increasingly resistant to buying non-vo/ng shares, which have becomes less widely
used.

In LSC non-vo/ng shares/stakes are regulated in ar/cles 98, 99, 100, 101, 102, 103, 499, 500,
501.

Non-vo/ng shares/stakes may be issued for a total par value that does not exceed one-half of
the total paid-in capital.
Non-vo/ng shares/stakes have the following rights:
1. To receive a minimum annual dividend. Once the minimum dividend has been stated, non-
vo/ng holders have the right to the same dividend paid on ordinary ones. In other words, non-
vo/ng also par/cipate propor/onately with common shares/stakes if a dividend is distributed
on the common shares/stakes. The minimum annual dividend and ordinary dividends are
cumula/ve for a period of five years in the case of non-listed companies. In the case of listed
companies this period will be indefinite.
2. Preferen/al rights in liquida/on. In the event of liquida/on of the company, non-vo/ng
holders rank above common holders with respect to their right to obtain reimbursement of the
paid-in por/on of their shares or stakes.
3. In case of capital reduc/on due to losses, the reduc/on must first be applied against all other
classes of stock before it can affect non-vo/ng shares or stakes.

Non-vo/ng holders have the same basic rights as common stock except for the right to vote at
the mee/ngs However, under certain excep/onal circumstances, no- vo/ng holders may
acquire a transitory right to vote at the mee/ngs. These cases are: - if the minimum annual
dividend is not distributed or, - if due to a capital reduc/on, all common shares/stakes are
redeemed, then non- vo/ng holders recover the right to vote un/l the propor/on between
vo/ng and non-vo/ng stock is restored. If this propor/on is not restored within a two years
period, the company is subject to mandatory dissolu/on.

Minority holders right

It has be seen how the day to day opera/on of a company’s business is leh in the hands of its
directors and managers, with shareholders having no direct input into business decisions. Even
when the members convene in a general mee/ng, the individual holder is subject to the wishes
of the majority. Minority holders are ohen concerned that their rights and interests will be
trampled by those of the majority shareholders. The Spanish law wants to enlarge the posi/on
of minority holders and has established several rules to give them important rights for their
protec/on.

These rights are:

a) the right to request the calling of an extraordinary mee/ng (art. 167, 168) and the right to
request an addi/onal complement on the no/ce convening the mee/ng in order to include one
or more maSers in the agenda (art. 172);
b) the right to challenge any resolu/on adopted by the Board of Directors (art. 251);
c) the right to file an ac/on for liability of directors, if such claim has not been filed by the
company itself (art. 239) and to object to the dismissal of a claim seeking the liability of the
directors (143.2;
d) therighSorequesSheMercan/leRegistertoappointanauditor(art.265)andto request the
Tribunals to revoke the appointment of an auditor (art. 420); and
e) the right to requests the presence of a public notary at the shareholders mee/ng (art.203)
Redeemable shares (acciones rescatables)
Redeemable shares as a form of privileged shares have been very recently introduced in
Spanish corporate legisla/on. However the possibility of issuing this type of shares is only open
to listed companies, subject to certain condi/ons. Redeemable shares are those whose
redemp/on of full or par/al purchase by the issuer or by third par/es is fixed in /me or
released at the choice of the shareholder, according to the condi/ons of the issue; or those
whose redemp/on or full or par/al purchase by the issuer or by third par/es is undertaken in
any other manner, excluding that contemplated above.

4. DOCUMENTATION AND TRANSFER OF SHARES

In general, shares may be either issued physically as cer/ficates or recorded by a book-entry
system held in electronic files. The condi/ons for recording shares under a book-entry system
and the regula/ons of this system are contained in the Securi/es Market Law (Law 24/1988), as
amended by Law 37/1998 and by Law 26/2003.

In both cases, they have the status of marketable securi/es

Shares represented by cerTficates

The shares of an S.A. can be registered or bearer shares (acciones nomina/vas o al portador).
Registered shares must be recorded in a special book (art.116) and the company will only
recognize as a shareholder those persons recorded in the company’s books, while the person
holding a bearer share will be recognized as a member of the company as far as he is able to
show to the company that he is the holder of the cer/ficate that represents the share.

Cer/ficates must contain a minimum informa/on about the company and the share itself (art.
114), such as: the corporate name and registered office, the par value of the shares and any
special right aSached to them, whether they are registered or bearer shares, any restric/ons
on transferability, any ancillary contribu/on, the sum paid in or the indica/on that they have
been fully paid, the signature of one or more administrators of the company.

The company is at liberty to issue registered or bearer shares. However, shares must be
registered in the following cases (art.113):- If they are not fully paid in; - If their transferability
is subject to restric/ons; - If they are subject to ancillary obliga/ons; - When so required by
special regula/ons (e.g. shares of banks and insurance companies).

It is not uncommon that share cer/ficates are not printed. In this cases the shareholder will
only receive a receipt, and the shares must be registered in the company’s book
Shares represented by book entries
Ar/cle 118 LSC estates that shares represented by book entries shall be governed by the
Securi/es Market Law (Ley del Mercado de Valores).

All companies can issue its shares either by cer/ficates or book entries, but representa/on of
securi/es by book entry is irrevocable.

Shares represented by book entries are recorded and no cer/ficated is to be issued. Transfer of
shares is done by accoun/ng transfer: once recorded the transfer is effec/ve and any person
appearing as the legi/mate owner according to the book entry records shall be presumed to be
the legi/mate owner. In the same way, the crea/on of limited rights, such as usufruct or pledge
of shares, shall be recorded in the relevant book. The crea/on of the lien is valid from the /me
the corresponding entry is recorded.

Transfer of shares
- Modus operandi
Becoming a member of the company can be intervivos o mor/s causa.
- Intervivos: by subscrip/on, by transfer from other member, by means of any valid
contract. Mor/s causa: shares are passed to the heir on the death of the shareholder.

In principle shares are freely transferable and, unless the company’s by-laws provide otherwise,
every shareholders has a right to transfer his shares freely. A share cer/ficate is prima facie
evidence of /tle. However, supplementary condi/ons need to be fulfilled on transferring
registered shares or shares represented by book entries. The company cannot register the
transfer unless a proper instrument of transfer is delivered to it. In case of registered shares,
the transfer shall be recorded in the books of the company. In case of book entries, the transfer
shall be made by accoun/ng transfer and registered in the account book.
- Limits on transferability
The by-laws can establish restric/ons on free transferability. Only where expressly provided for
in the by-laws shall restric/on by binding. Restric/ons on free transferability are only admiSed
for registered shares.

Restric/ons on transferability are admiSed but not to the extent of making the transfer
impossible. If the by-laws are so strict as to prevent any transferability at all, the by-laws
clauses shall be null and void. The LSC recognizes restric/ons to free transferability in the
following cases:
a) Preferen/al rights recognized to shareholders in order to acquire shares from other
shareholders.
b) Especial condi/ons to be fulfilled by the future shareholders
c) Prior approval of the corpora/on. In this sense the by-laws can establish that transfers shall
be subject to prior approval of the corpora/on, but the reasons to deny the transfer must be
expressly established. In other sense, transferability
shall be granted if the managers remain silent aher a 2 month period of /me.
d) Special rules are stated in the case of death of the shareholder or when the acquisi/on of
the shares is a consequence of a judicial or administra/ve executory proceeding. When the
company does not accept the heir as a shareholder it must tender the shareholder a purchaser
or must itself offer to
purchase them at the market value.
5. REPRESENTATION AND TRANSFER OF STAKES IN S.R.L
a) RepresentaTon of stakes
Stakes may not be represented by cer/ficates or book entries, nor be called shares, and under
no circumstances shall be regarded to be securi/es (art. 92.2). So, how are they represented?
Any other way that are not those in art. 92. So, the ques/on is how the company can iden/fy
the partners. For this purpose, the LSC establishes the obliga/on for the company to keep a
stakeholders’ ledger (art. 104). This book shall contain the records of the original stakes and
subsequent voluntary or obligatory stake transfers, as well as the crea/on of rights ad rem or
other encumbrances thereon. Only the par/es entered in such ledger shall be acknowledged
by the company to be partners. The ledger shall be kept and custodied by the governing body.

The ledger may only be rec/fied by the company either at a request of a partner or at its own
ini/a/ve. In this last case, the company shall give no/ce to the partners affected. The company
will proceed to the change if no objec/on is raised. Partners’ personal data may be modified at
their request, un/l which /me no such modifica/on shall have any effect on the company.

Holders are en/tled to obtain a cer/ficate of the stakes, rights or encumbrances recorded in
their name (art 105)

b) The transfer of stakes

The requirements for the valid transmission of the stakes is regulated in art. 106 to 112 LSC. In
the first place, the transfer of stakes shall be recorded in a public document. Secondly,
transferability of stakes is restricted to partners or partners close rela/ves of the partner who
wants to transfer his par/cipa/on in the company.

The star/ng point of the legal regime is: stakes are freely transferable if acquired by other
stakeholders, ascendants, descendants or companies within the same group. In fact, unless
otherwise provided in the bylaws, the Law establishes a preferen/al acquisi/on right in favour
of the other partners or the company itself in the event of transfer of the par/cipa/on units to
persons other than different than those men/oned.

In other cases, voluntary transmissions shall be subject to the rules and limita/ons established
in the by-laws. However, art. 108 establishes several prohibi/ons such as Clauses allowing
voluntary virtually free transfers inter-vivos or those others stablishing an absolute prohibi/on
of the transmission.

Where not regulated in the by-laws, voluntary transfers inter vivos shall be governed as
following: - a) partners wishing to transfer their stakes shall no/fy their inten/on to the
company; - b) the company shall give its authorisa/on, granted under a decision of the annual
general mee/ng; and - c) authoriza/on can only be denied if the company offers a different
person to acquire the stakes under the condi/ons established by the offerer.

Transfers mor/s causa, as established in art. 110 LSC, confers partnership status on the
inheritor or legatee. However, the by-laws may grant the surviving partners or the company,
the right to purchase the deceased partner’s stakes at their fair value on the date of the
partner’s death, cash down.
In the case of mandatory transfer, that is in the cases where the transfer occurs through a
public bid or any other legal means of forced transmission as a result of a legal or
administra/ve procedure, the seizure of stakes must be immediately reported to the company.
In case the company does not agree on the person of the acquirer, it shall present a different
person (a partner or third party).

6. JOINT OWNERSHIP AND THIRD PARTIES RIGHTS ON SHARES AND STAKES

Shares and stakes are indivisible. Joint owners of a share/stake shall designate one person to
exercise the rights of the holder (ar. 90 Y 126).

Where a usufruct is granted, the ques/on is who is en/tled to exercise the rights conferred by
the share/stake, the owner or the usufructuary. As a general rule, otherwise agreed, the owner
of the share/stake is en/tled for the exercise of all the rights except the right to dividends
(art.127). That means that the proprietor can aSend the mee/ng, demand informa/on, vote
and challenge the decisions of the mee/ng or the board. Other specific rules are stablished in
case of capital increase and preferen/al rights.

In case of pledge of shares, the owner of the share/stakes is en/tled to exercise shareholders
rights. The secured creditor shall be bound to enable the owner to exercise such rights.
(art.132).

LESSON 10 – GOVERNING BODIES S.A / S.R.L

GENERAL MEETING

1. GENERAL IDEAS
In theory, the ul/mate control over a company’s business lies with the members in general
mee/ng. The general mee/ng in capital companies is the supreme governing body of the
company. Art. 159 provides that “assembled in an annual general mee/ng, shall adopt
decisions on the maSers whose competence is reserved to the general mee/ng by majority
vote as defined by law or in the by-law” All shareholders and partners shall be bound by the
resolu/ons passed at a general mee/ng.

The mee/ng can deliberate over all those maSers of its competence. Art. 160 enumerates the
maSers of jurisdic/on the mee/ng has. These are: a) Approval of annual financial statements,
distribu/on of earnings and the approval of corporate governance; b) Appointment and
dismissal of directors, liquidators and, when necessary, account auditors and the ins/tu/on of
liability ac/on against any of these persons; c) Amendments to by-laws; d) Capital increase and
reduc/on; e) Removal or limita/on of pre-emp/ve or preferen/al subscrip/on rights; f)
Acquisi/on, disposal or transfer to another company, of any essen/al assets. Assets are
considered essen/al when the sum of the transac/on exceeds twenty-five percent of the share
value shown in the latest approved balance sheet; g) Conversion, merger, spin-off or global
assignment of assets and liabili/es and transfer of registered office abroad; h) Dissolving the
company; i) Approval of the final liquid
da/on balance sheet; j) Any other maSers s/pulated by the law or the by-laws.
The mee/ng cannot interfere in the ac/vi/es charged to other bodies, such as the
representa/on of the company. However, art. 161 establishes that the mee/ng may issue
instruc/ons to the management body and submit, for their authorisa/on, the adop/on by
afore men/oned body of decisions and agreements about certain management issues.
In the frame of its facul/es, it is important to remark that the mee/ng cannot approve
resolu/ons against the by-laws, but it can amend them; the mee/ng is obliged by the
mandatory rules included in the LSC; cannot adopt resolu/ons against share or stakeholders’
rights nor imposes new obliga/ons if the share or stakeholders have not agreed on them; in
the same sense, the mee/ng cannot adopt resolu/ons that can be harmful to the company to
the benefit of one or more shareholders or third par/es.

2. THERE ARE DIFFERENT TYPES OF MEETINGS

Art 163 and 166 provides that general mee/ng may be either ordinary or extraordinary.

The annual ordinary mee/ng must be held within the first six months of each financial year
with the main purpose of approving the general accounts and review the corpora/on’s
management. The basic characteris/cs are:
- the /me in which it must be held (6 months aher the closing of the fiscal year) and
- the topics to be discussed: the ordinary ac/vi/es of the company. In the ordinary mee/ng the
financial statements shall be approved as well as proposed distribu/on of the prior year
earnings.

Extraordinary general mee/ng is a mee/ng other than the Annual General Mee/ng (art. 165).
The extraordinary mee/ng can be called by the Company directors if and when they consider it
in the company’s interests to do so. By the company’s directors when requested by
shareholders represen/ng at least 5% shared capital. By a Court if the directors disregard the
no/fica/on referred to above.

Class mee/ngs: these are not general mee/ngs but only for those ac/ons with special rights
that discuss together their specific problems within the general organiza/on of the company.

3. CALLING FOR THE MEETING

The shareholders and partners are called to aSend the mee/ng by the directors. Directors have
the faculty and the duty to convene mee/ng following arts. 166-171.

In the case of an Annual mee/ng, Directors shall call the within the 6 months aher the end of
the prior financial year. If Directors do not call for annual mee/ng, it may be called by the
court, upon pe//on by the shareholders or partners.

The Directors can call an extraordinary mee/ng whenever they deem it to be in the interests of
the corpora/on. The Directors shall also call an extraordinary mee/ng upon the request of
shareholders or partners holding at least 5% capital stock. Shareholders us in their request
state the maSers to be discussed.

If the shareholders mee/ng is not called within the legal terms, the members of the company
can request the Judge of First Instance, who will call for the mee/ng.
4. NOTICE
Proper and adequate no/ce must be given to all those who are en/tled to aSend any mee/ng.
The precise nature of the no/ce is governed by art. 173-174.

The no/ce shall be published in advance in the Official GazeSe (BORM) and in a major daily
newspaper in circula/on in the province where the company has its registered office, at least 1
month for SA and 15 days for SRL of the date set for the mee/ng. The by-laws may provide for
convening general mee/ngs by any wriSen, individually addressed no/ce forwarded in a
manner that guarantees receipt by all the partners or shareholders at the addresses designated
thereby for that purpose or at the addresses listed in the company’s files.

If the share or stakeholders do not aSend the first call for the mee/ng, a second call may be
done.
- In SA the announcement of the second call can be done together with the first call. In this
case, between the first and second call there must be a minimum period of 24 hours in SA.

The no/ce shall include the date, place and /me of the mee/ng and the adequate content of
the agenda. That means that all the maSers to be discussed should be clearly expressed in the
no/ce.

The mee/ng will take place in the town where the company has its registered office.

It is usually the preroga/ve of the directors to decide which mo/ons will be put to the
company in the general mee/ng. Members, however, have the right to request an addi/onal
complement on the no/ce convening the Shareholders’ mee/ng in order to include one or
more maSers in the agenda.

5. UNIVERSAL MEETING
Regardless of the type of the mee/ng (ordinary or extraordinary) the formal call requirements
need not be followed if shareholders or partners represen/ng 100% capital are present and
agree unanimously to hold a mee/ng. Such mee/ng is called universal mee/ng in order to
indicate that all the shareholders or partners are present to discuss whatever maSer
concerning the company (art.178).

6. THE RIGHT TO ATTEND AND VOTE

Following art. 93 c) all shareholders and partners have the right to aSend and
vote at the mee/ng.

Special rules are set for SA. In the first place, the bylaws may condi/on the right of aSendance
upon proof of shareholders’ status. The status is proved when the shares have been entered in
the register five days prior in which the mee/ng is going to be held. In case of bearer shares,
the holders should have made the deposit of the shares instead of registered them. In a
different sense, the by-laws may require, in order to aSend the mee/ng, that the shareholders
hold a minimum number of shares, never over 1/1000 of the capital stock. Grouping of shares
are admiSed.). In addi/on, if the by-laws allow remote aSendance at general mee/ngs by
electronic methods the company shall ensure that the mee/ng is conducted in an orderly
fashion and shareholders can exercise their rights.
Directors shall aSend the shareholders mee/ng. There are also other persons that can be
authorized to aSend the mee/ng if required, such as mangers or technical managers.

Virtual aSendance is recognized in art. 182 in the case this possibility is included in the bylaws.

7. PROXIES
Partners and shareholders may be represented at the general mee/ng.

A shareholder may be represented at a shareholders’ mee/ng by any person, who need not be
a shareholder unless the bylaws provide otherwise (art. 184) the proxy must be in wri/ng or
using certain means of long-distance communica/on, and specific for each mee/ng.

A shareholder may cast his vote by mail, e-mail or using any other means of long-distance
communica/on as provided for in the bylaws and will then be considered to be present for the
purpose of establishing the quorum for the mee/ng.

Special rules regulate the public solicita/on of proxies. Proxies are deemed to have been
solicited publicly if one person represents more than three shareholders.

Partners may only be represented at general mee/ngs by their spouses, ascendants or

descendants, another partner or by a person holding a general power of aSorney by virtue of a
public document ves/ng him/her with powers to administer all the assets that the principal
owns on Spanish soil. Representa/on by other persons may be authorised in the by-laws

8. THE CHAIRMAN OF THE MEETING

The mee/ng shall be presided by the person appointed in the by-laws. If there is no such
provision, the chairperson of the Board of Directors shall preside over the mee/ng, or, in his
absence the person elected by partners or shareholders present. In case the mee/ng had been
called by the Judge, it is up to the Judge to appoint the person to preside the mee/ng (art. 191
LSC).

The chairman conducts the mee/ng and must preserve order and ensure that it complies with
the provisions of the companies’ legisla/on. He must also decide about the informa/on
shareholders have asked for.

9. ATTENDANCE LIST
Before entering to discuss the agenda, a list of aSendants shall be prepared. The list shall
include the names of the shareholders/parterns at the mee/ng, either personally or by
representa/on, the number of shares or stakes they hold in property or by representa/on,
including the amount of capital present in the mee/ng and the amount of corresponding
vo/ng right. In SRL, the aSendance list must necessarily be included in the minutes (art. 192
LSC).
10. QUORUM FOR THE CONSTITUTION OF THE MEETING IN S.A
The quorum is the minimum number of persons whose presence is required for the transac/on
of business in any mee/ng. It is important to no/ce that the celebra/on of the mee/ng in SRL
does not require quorum at all. However, it is reasonable to think that it is necessary the
aSendance of partners in enough number to adopt the resolu/ons. Instead, the law establishes
special rules for the valid adop/on of the decisions.

In SA, the quorum for a shareholders mee/ng, al the first call exists when the shareholders
present or represented at the mee/ng own at least 25% of the vo/ng capital stock (art.193). If
a second call has to be made, because there was no quorum at the first call) the mee/ng is
deemed to be legally convened regardless of the percentage of capital stock present o
represented at the mee/ng. A Company’s bylaws may set special call and quorum
requirements for shareholders’ mee/ng. However, the special quorum requirements cannot be
lower than the legal requirements.

Special quorums are required by law for the adop/on of resolu/ons on certain maSers
(art.194) e.g. debenture issuance, capital increase or reduc/on, any transforma/on, merger or
spin-off of the company and, in general, for the adop/on of resolu/ons amending the bylaws.
In such cases, the quorum required at the first call exists when the shareholders present or
represented at the mee/ng own at least fihy percent (50%) of the subscribed vo/ng capital
stock. At the second call, a quorum will exist if at least twenty-five percent (25%) of the vo/ng
capital stock is present or represented at the mee/ng. However, if a mee/ng subject to a
special quorum requirement is held on second call with less than fihy percent (50%) of the
vo/ng capital stock present or represented, then a special vo/ng rule s/pulates that
resolu/ons may only be validly adopted by the ‘aye’ votes of shareholders owning at least two-
thirds of the capital stock present or represented at the mee/ng (art. 201).

11. RIGHTS OF SHAREHOLDERS AND PARTNERS AT THE MEETING: THE RIGHT OF

INFORMATION
Shareholders and partners had mainly the right to take part in the discussion of the maSers
included in the agenda and to vote. All the maSers included in the agenda should be discussed,
and on the contrary a maSer which have not been included cannot be discussed and vote.

It is of the maximum importance for shareholders and partners the right to be informed. Rules
are different in SA and SRL

In SA shareholders may request any reports or clarifica/ons they consider important. The y can
do it in wri/ng prior to the mee/ng or orally at the mee/ng. The Directors must provide such
informa/on unless if the disclosure of the informa/on would be detrimental to corporate
interests. In any case informa/on must be disclosure if at least 25% of the stock capital requires
that informa/on should be given. There are special rules for listed companies.

The right to informa/on may be exercised before the mee/ng. In this sense, the no/ce calling
the mee/ng shall make clear that shareholders have the right to exam both the full text
proposed or other related documents in the corpora/on office. In addi/on, shareholders are
en/tled to have the documents sent free of charge before the mee/ng.
In SRL, partners may request in wri/ng prior to the general mee/ng, or verbally during the
mee/ng, any reports or clarifica/on that they deem necessary in connec/on with items on the
agenda. Directors are obliged to provide such reports or clarifica/on either verbally or in
wri/ng, except where, in the governing body’s opinion, disclosing such informa/on may be
detrimental to the company’s interests. Informa/on may not be withheld when requested by
partners represen/ng at least twenty-five per cent of the capital (art. 196 LSC).

12. DECISIONS
In SA and SRL the members decide by majority vote all those maSers within the competence of
the mee/ng. The bylaws can establish a higher majority, but it won’t be licit a clause imposing
unanimity. In other sense, it is important to no/ce that partners and shareholders may be in a
conflict of interest with the company. In such cases, art. 190 LSC establishes the prohibi/on of
exercising the right to vote for partners or shareholders.

Majority rules in SA. Decisions shall be adopted by simple majority of the votes of the
shareholders present or represented by proxy in the general mee/ng. An agreement is
understood to be adopted once more votes are obtained in favour of the of the present or
represented share capital than against. Agreements referred to in ar/cle 194 shall require an
absolute majority of over fihy percent of the present or proxy share capital. However, a
favourable vote of two-thirds majority of the present share capital or represented by proxy at
the general mee/ng shall be required when, at second call, at least twenty-five but less than
fihy percent of the subscribed share capital with vo/ng rights is in aSendance (art. 201 LSC).
Grouping for vo/ng is licit.

Votes can be expressed in any manner as far it is enough to make clear the sense of vote. A
resolu/on can be decided upon a show of hands or in any other way, for example in a poll.
Recently, the law has established the possibility to vote by mail, e mail or using any other
means of long-distance communica/on as provided for in the bylaws, and will then be
considered to be present for the purpose of establishing the quorum of the mee/ng.

Majority rules in SRL (art.198-200 LSC). Generally, corporate resolu/ons shall be adopted by a
plurality of valid votes cast, provided they represent at least one- third of the votes pertaining
to the stakes into which the capital is divided. Blank ballots shall not be counted. For decisions
on important maSers, qualified majority is requested: a) Increases or reduc/ons in capital and
amendments to the by-laws shall require 1⁄2 capital; b) A majority of at 2/3 of the votes shall
be required to: authorize directors to engage in an ac/vity that is the same as or similar or
complementary to the company’s corporate purpose; cancel or limit pre-emp/ve rights in
capital increases; convert, merge, spin off or globally assign assets and liabili/es; transfer the
registered office abroad; or exclude partners.
For all or some items, the by-laws may require a higher percentage of aye votes than
established by law, but not unanimity.

13. MINUTE
A minute of the mee/ng is required. It is an important document as it is regarded as evidence
of the proceedings. Minutes are legally binding if they are approved by the mee/ng itself or
within fiheen days by the chairperson and two referees (art.202).
A Public Notary can be called by the managers. The notary’s record shall be regarded as the
minutes of the mee/ng (art.203).
14. CHALLENGE OF RESOLUTIONS
Resolu/ons can be unlawful, contrary to the by-laws or harmful to the interests of the
corpora/on to the benefit of one or more shareholders or par/es (art. 204). These resolu/ons
may be challenged by shareholders, directors and any third party who can show a legi/mate
interest with the requirements of art. 204, 205 and 206.
 LESSON 11 – GOVERNING BODIES OF S.A / S.R.L
DIRECTORS (Arts. 209-251 LSC)

1. THE POSITION AND STRUCTURE OF DIRECTORS

FaciliTes
The Directors of the company are the body in charge of management and representa/on of the
company (art. 209). The administra/on of the company is seen in a wide concept that involves
different types of du/es. From one angle, the directors can be seen as a person whose role is to
protect and preserve the assets for the beneficiary and, from the other, he can be seen as a
dynamic entrepreneur whose job is to take risks with the capital in order to realize the business
which cons/tutes the purpose of the company. At the same /me, the directors represent the
company and are able to bind the company with its acts and transac/ons.

The directors have a separate area of work, quite independent from the shareholders or
partners, due to the fact that those who provide a company’s capital are not actually
concerned in determining how that capital is used in the day to day opera/ons of the business
enterprise, which is leh in the hands of small number of the company directors, whilst the
large majority of shareholders remain powerless to par/cipate in the actual business from
which they derive their dividend payments. In fact, this is known as the separa/on of
ownership and control.

In theory, the shareholders and partners exercise the ul/mate control over directors through
the general mee/ng, must follow the decisions of the mee/ng and can be removed at any /me
by the mee/ng. In addi/on, unless specified otherwise in the by- laws, the general mee/ng
may issue instruc/ons to the governing body (art. 161).

In the Spanish Law the regula/on of the Directors is established in art. 209 to 251. Firstly, the
Law regulates the general provisions for all types of Directors. Secondly, there is specific
regula/on for the Board of Directors.

Forms of administraTon
Following art. 210 the structure of the administra/on of the company can be organized into
one of the following ways:
a) a sole director (administrador único)
b) two or more severally liable directors (administradores solidarios)
c) two joint directors (administradores mancomunados)
d) a Board of Directors (Consejo de Administración).
The by-laws have to choose one of these forms.

The board of directors

Art. 210 reads that where company’s management is entrusted jointly to more than two
persons, they shall cons/tute a Board of Directors.

The bylaws may establish the exact or a minimum and maximum number of members. In this
case, the general mee/ng shall determine the exact number. As for the maximum number of
members, in SA there is none; in SRL, the board shall not have more than twelve members.
It is a collegiate body. That means that for the adop/on of resolu/ons the members have to act
jointly and adopt their resolu/ons by majority. None of the members has separate powers.ç

The Law does not provide for an extensive and me/culous opera/onal system and each
company should establish in the by-laws the way to act of the board. It is important to no/ce,
that the organiza/on and modus operandi of the Board is slightly different in SA and SR.

In SRL, the by-laws shall establish the organisa/onal arrangements and modus operandi of the
board of directors. The bylaws, then, shall include at least the rules on convening its mee/ngs
and the quorum required, as well as the manner in which it shall conduct its discussions and
the majority needed to adopt its decisions.

In SA, unless otherwise specified in the by-laws, the Board of Directors can self- regulate its
internal processes and choose one of its members to be the chair or chairperson of the board
of directors (art. 245) also called chairman or chairwoman and the Secretary of the Board.

The board of Directors must hold a mee/ng for the adop/on of resolu/ons at least once every
three months. The mee/ngs for the discussion and adop/on of decisions need to be convene
in advance by the chairman. However, if the chairman does not convene the mee/ng, it can be
convene by at least one third of the members of the board may convene a mee/ng, specifying
the agenda, which must be held in the town or city where the registered office is located.

The minimum quorum needed for the valid celebra/on of the mee/ng is, in SA, one half plus
one of the members aSending the mee/ng, personally or by proxy (art. 247). In SRL, the
quorum for board of directors’ mee/ngs shall be reached when they are aSended, in person or
by proxy, by the number of directors specified in the by-laws, which may not be less than the
majority of the board members.

For the adop/on of decisions, art. 248, remains silent in the case of SRL. This ques/on shall be
regulated in the bylaws. On the contrary, in SA, resolu/ons are adopted by an absolute
majority of the directors aSending the mee/ng. Excep/onally, vo/ng in wri/ng is admiSed
without a mee/ng if none of the directors is opposed to such a procedure.

The Board may delegate its func/ons to one or more managing directors or to an execu/ve
commiSee. The permanent delega/on of Board powers requires the affirma/ve vote of two-
third par/es of the Board members and such delega/on is not legally valid Gun/l it has been
registered in the Mercan/le Register (art. 249). However, there is a long list of facul/es that
cannot be delegated (art. 249 bis) such as its obliga/on to submit annual financial statements
to the shareholders mee/ng or the determina/on of the general policies and strategies of the
company.

The discussions and resolu/ons of the Board shall be kept in a minute book, which shall be
signed by the chairman and secretary.
The directors may challenge any void or voidable resolu/ons of the Board or any other
authorized corporate management body, within 30 days of adop/on. Moreover, shareholders
represen/ng 1% of the capital may also challenge such resolu/ons within 30 days from the
date when they first became aware of them, if a year has not passed since their adop/on (art.
251).

2. GENERAL RULES FOR ALL TYPES OF DIRECTORS

Capacity and prohibiTons
A director is not normally required to be a shareholder unless the by-laws provide other chose.
Any person, individual or legal en/ty can be appointed as a director. However, when a body
corporate is appointed director, a single natural person must be permanently designated
thereby to fulfil the du/es incumbent upon the posi/on (art. 212.1)

However, art. 213 of the Law establishes several prohibi/ons to be appointed as a director,
such as minors or persons with legal incapacity, persons prohibited from holding a public
posi/on by criminal sentence, those convicted of a serious viola/on of labor laws or
regula/ons, those who have an incompa/ble job with the company, civil servants entrusted
with func/ons rela/ng to the ac/vi/es of the company.

The law provides for disqualifica/on of directors on the occurrence of these circumstances.

Appointment
As a general rule, reads art. 214, the appointment of directors is decided by the general
mee/ng. The mee/ng shall also decide the number of directors when the by-laws provides
only for a minimum and maximum number. The mee/ng may also fix the guarantees to be
provided by the Directors. Appointment as a Director becomes legally effec/ve when accepted
by the appointee and shall be registered in the Mercan/le Register within ten days from the
date of the appointment (art. 215). The term of office for Directors is set by the by-laws and, in
SA cannot exceed six years. Directors can be re-elected for one or several further six-year
period (art. 221.2). As for SRL, the period for their office can be established in the bylaws.
Otherwise, they can keep their offices indefinitely.

However, in addi/on to the general rule, there are two different cases for the appointment of
the members of the Board in SA.

1. - Minority shareholders that meet certain thresholds of ownership are en/tled to

propor/onal representa/on on the Board. In this regard, shareholders who voluntarily pool
their shares to create an amount of capital equal to or higher than the number derived by
dividing the total capital by the number of Board Members shall have the right to appoint the
number of Directors in propor/on to their capital (Capital amount/number of directors= x%
share capital required for the appointment of one member)

2. - Coop/on: Where during the term of office for which Directors were appointed, says art.
244, a vacancy occurs, the Board may appoint any shareholder to fill such vacancy un/l the
holding of the next general mee/ng. As we can see, the Spanish Law permits the board of
directors to appoint directors to fill a vacancy which arises on resigna/on or death.
RetribuTon
Retribu/on is not a necessary condi/on of Directors, but it is common for companies to
establish a retribu/on for them. It is to the bylaws to fix the retribu/on system if any. If the by-
laws remain silent, no remunera/on is to be paid.

Retribu/on can consist in: a fixed assignment; aSendance fees; shares in the profits; variable
remunera/on with general indicators or benchmarks; remunera/on in
shares or linked to their growth; compensa/on for dismissal, assuming that the dismissal was
not mo/vated by incomple/on of the director’s du/es; and, finally, any savings systems or
provision deemed appropriate.

It is important to no/ce that, in all the cases, directors’ remunera/on must remain
propor/onate to the significance of the company, the economic situa/on at that moment and
the market standards of comparable companies. The established remunera/on system must be
designed to promote the long term profitability and sustainability of the company and
incorporate the necessary precau/ons to avoid excessive risk-taking or rewarding unfavorable
results

Arts. 217, 218 and 219 determine the condi/ons to be met in case retribu/on consists of a
share in the profits of the company, aSribu/on of shares or stock op/ons. Retribu/ons
consis/ng in the share of profits may only be paid, in SA, aher alloca/ng funds to the reserves,
legal of established in the bylaws and aher paying the shareholders a dividend of at least 4%
(or a higher percentage fixed in by-laws) and, in SRL, the maximum share percentage may not
exceed of 10% of the profits set aside for distribu/on among partners. In case of aSribu/on of
shares or stock op/ons to the Directors, it must be so stated in the by-laws and approved in a
special resolu/on of the shareholders mee/ng.

Removal
There are a number of ways in which a person may be obliged to give up their posi/on as a
director:
- Expiry: by the end of the period they were elected for if they have not been re- elected
(art.222).
- Dismissal: by decision of the general shareholders mee/ng at any /me (art. 223). The power
to remove a director cannot be taken away or restricted by any provision in the company’s
documents.
- When the shareholders mee/ng has decided any seek of liability of Directors
- The dissolu/on of the company opens the liquida/on process and Directors are removed
from their office in favour of the liquidators who will be in charge of the liquida/on of the
company.
- Resigna/on of the Director
- Disqualifica/on (art. 224), when a Director is subject to any of the prohibi/ons included in art.
213.
Removal of Directors must be registered in the Mercan/le Register.
3. POWER OF REPRESENTATION
Directors are the management body and representa/ve body of the company. In this sense,
LSC provides in ar/cle 233.1 that “In corporate enterprises, the company shall be represented,
in or out of court, by the directors in the manner provided in the by-laws”.

The bylaws of the company shall contain the structure of the body charged with the
management of the corpora/on, specifying the managers to whom the power of
representa/on is granted. Following rules must be accomplished as provided in art. 233.
- In case of a sole Director, the power of representa/on will be granted to him.
- In case of severally Directors, the power of representa/on can be exercised
indis/nctly by any of them.
- In case of joint Directors, Directors need to act together.
- In case of a Board of Directors, the representa/on of the company is given to
the board as a whole. However, the power may be delegated to one or more members.

With respect to third par/es the Directors represent the company in all acts within the scope
of its corporate purpose and the company is bound even with respect to acts outside the scope
of its corporate purpose as registered in the Mercan/le Register (234). In these cases the
company is liable to third par/es who have acted in good faith. Such good faith is presumed,
subject to proof to the contrary.

Representa/on comprises all the acts included in the corporate purpose described in the
bylaws. No limits can be made to the power of the Directors even if they are registered in the
Mercan/le Register. If any limita/on exists the acts of the directors cannot be challenged on
the basis of the registered limits, and the company shall be liable for those acts.
- Art. 234.2 “The company shall be bound to honour its commitments to third par/es ac/ng in
good faith and not incurring gross negligence, even where, according to the bylaws registered
in the mercan/le register, the transac/on involved may be inferred not to be included in the
company’s purpose”.
4. DIRECTORS DUTIES
In the performance of their du/es, the Directors shall exercise with –a) the diligence of an
orderly business person, taking into account the nature of the role and the du/es inherent in
each one; and –b) directors must perform their roles as loyal representa/ves, opera/ng in good
faith and in the best interest of the company.

Due diligence
Duty of skill and diligence means that the directors have to involve themselves and par/cipate
ac/vely in the administra/ve body. They must possess the appropriate dedica/on and adopt
the necessary measures for good management and control of the company. To adequately
complete their obliga/ons, directors have the right to demand and seek form the company the
appropriate informa/on. Obtaining the best informa/on is basic in the day-to-day ac/vity of
directors so that they can adopt the best decisions for the business of the company. However,
directors are expected to take risks. Business risks means that the results of the transac/ons
may be profitable or harmful for the business. Taking risks may bring the company to losses
instead of profits. In these cases, directors should not be punished and liable for the losses if,
while adop/ng the strategic decision, they have acted in good faith, avoiding any personal
interest and in a manner the directors reasonably believe to be in the best interests of the
company (art. 226.1).
- This is the, so called, business judgment rule.

Duty of faithfulness
Duty of faithfulness or loyalty is established in art. 227 that reads: “Directors must perform
their roles as loyal representa/ves, opera/ng in good faith and in the best interest of the
company. It means that Directors have the duty to act bona fide in the interests of the
company as a whole and not in the interest of any one person or group.
The breach of loyalty permits the company to claim for compensa/on of any damage caused to
company assets and, also, to return to the company any unjust profit they could have obtained.
The faithfulness duty is developed in art. 228 that includes several situa/ons such as duty of
secrecy or confiden/ality, concerning the informa/on obtained through their tasks, or avoid
conflict of interests. However, conflict of interest is of such importance that it is specifically
regulated in art. 229. In such cases, Directors have to declare any interest, direct or indirect, in
any contracts with their companies and has it forbidden to vote in regard of contracts in which
they have any interest.
5. LIABLITY OF DIRECTORS
General rules
Directors are held to a standard of faithful defence of the corporate interests, loyalty and
secrecy. In art. 236 we can read that directors shall be liable for any damage caused to the
corpora/on by the commission of any illegal ac/ons, contrary to the by- laws or done in breach
of the du/es pertaining to their office.

Directors are liable not only to the company but to its shareholders, and its creditors.
In case that the company administra/ve body has two or more directors, all of them are jointly
and severally liable (art.237). A director can only be exonerated from liability if he proves that:
a) he did not par/cipate in the adop/on or execu/on of the resolu/on and that he was
unaware of the existence of the harmful act, or
b) on being aware of it he did everything reasonably possible to mi/gate its effect or, at least,
c) expressly opposed the resolu/on giving rise to the harm.

A company cannot exempt an officer from the wrongful acts by means of authoriza/on or
ra/fica/on of the act in the shareholders mee/ng.

The enforcement of Director’s liability

In art. 238-240 we can find the rules governing the enforcement of directors’ liability. It is
important to no/ce that the ac/on is directed to repair the harm or damage caused to the
company. And in this sense is the company the one en/tled to sue directors. The company may
seSle or dismiss such proceeding but no maSer which the resolu/on sense Directors shall be
removed. In addi/on, even the approval of the financial statements shall not bar an ac/on for
liability.
a) The ac/on is to be filed by the company upon resolu/on of the general shareholders
mee/ng. The resolu/on can be adopted even though it is not included in the agenda. The
resolu/on shall be adopted following the majority rule as stated in art. 93 and the by-laws may
not fix a different one.
b) Shareholdersrepresen/ng5%ofcorporatecapitalmayfiletheac/onseekingthe liability of
directors when: 1) the shareholders mee/ng is not called by the directors on request of
shareholders; 2) when the company fails to file such suit within one month from the /me the
resolu/on: and 3) when the resolu/on adopted was against seeking such liability.
c) A deriva/ve ac/on is brought in respect of wrongs against the company when creditors sue
in place of the company. In this sense art. 240 provides that creditors may bring deriva/ve suits
when the company or its shareholders fail to do so and the company’s net worth is not enough
to sa/sfy their credits.

Individual acTons for directors’ liability

Art. 241 provides that suits for damages by shareholders and third par/es against directors
may be brought where the ac/ons of the directors directly affected their interests.
 LESSON 12 – S.A / S.R.L : FINAL ACCOUNTS, AMENDEMENTS OF BY-LAWS

1. FINAL ACCOUNTS
The Spanish Commercial code establishes the duty of accountancy for all traders. This is of
special importance for Companies not only because they are traders but because a company is
governed by Directors who have to report to group of shareholders or partners who are the
members of the organiza/on that have invests their capital in the company and want to know
about the result of the business.
From the general point of view, the regula/on for accountancy is set in the Cco as we have
already seen. From the par/cular point of view of the shareholders/partners and the company
itself the rules are set in the LSC.

General rules (Lesson 4)

General rules on Books and Accounts as well as General Principles and Standards are in L.4

Duty of accountancy of directors and issue of statements

Directors have the duty of accountancy and report to the company about the profits of the
company during a specific period of /me (one year ).
There are two different aspects. On the one hand, directors have to record the economic
ac/vity of the business, keep the books and find out the final result. On the other hand,
Directors have to report to the general mee/ng and propose the distribu/on of the earnings.
This second aspect is the one specifically regulated in the LSC.
Art. 253, sets the obliga/on of directors to issue the financial statements of the company, the
management report and the proposed distribu/on of earnings, and, as appropriate, the
consolidated financial statements and management report.

Directors shall, as well, sign the financial statements and the management reports and it is not
sufficient the signature of some of them but all of them shall sign the documents. In the case
that any of the signatures is missing, all the documents impacted shall contain a men/on
thereof and an explicit explana/on therefor.

The financial statements as we know, comprises a balance sheet, an income statement, a

statement reflec/ng the changes in equity during the period, a cash flow statement and notes
to the financial statements, with these documents cons/tu/ng a set of informa/on for these
purposes.

The management report is also required. The report is a mainly a descrip/on (fair and true) of
the company’s business and situa/on and of the main risks and uncertain/es to be confronted.
- The descrip/on must be a balanced and comprehensive analysis of the varia/ons in and
results of the company’s business and posi/on, consistent with its size and complexity. The
analysis must cover financial and other key performance indicators relevant to the business
ac/vity. The informa/on must be presented to the extent necessary for an understanding of
company trends, performance or posi/on.
Financial statement audit
the Spanish Company Law, states that all corpora/ons, except for those authorized to present
abridged (abbreviates) financial statements, must have their financial statements audited
(art.263).

Companies, within certain limits, have an op/on to file abbreviated financial statements:
Corpora/ons below at least 2 of the following thresholds for 2 consecu/ve years prior to the
balance sheet date may present an abridge balance sheet:
a) Total assets of 2.373.998 € or less
b) Annual revenue of 4.747.996 € or less
c) Average number of employees during the year of 50 or fewer.

AUDIT LIMITS:
a) 2.850.000€
b) 5.700.000€
c) 50

A.F (formato abreviado) con/enen menos contenido que las Audit limits:
a) 4.000.000€
b) AR 8.000.000€
c) 50

Auditors shall be appointed by the general mee/ng before the end of the financial year to be
audited, for an ini/al period that may be no less than 3 nor more than 9 years, calculated from
the star/ng date of the first financial year to be audited, without prejudice to a possible
extension pursuant to the provisions laid down in the legisla/on regula/ng accounts audi/ng.
- Auditors can be also appointed by the Mercan/le Register, in case the mee/ng fails to do so
or, in case the company is not obliged to audit financial statements, upon requirement of the
minority shareholders (art.265). Auditors can be appointed by the court under special
circumstances (art.266)

G.M. AGENDA
- A.F.S
- share profits
- appointment auditors

The purpose of the audit report (art.268) is to verify whether the financial statements present
a true and fair view of the net worth, financial posi/on and earnings of the company, and as
appropriate, the consistency between the management report and the financial statements for
the financial year.
- The audit law indicates that the Spanish audit firms that audit companies considered as public
interest, shall be required to issue an annual transparency report (which will be available on
their website) that collects, at least, the legal form of the company, owners of the firm,
governing bodies, descrip/on of quality control procedures, personnel training policies, public
interest en//es audited, procedures to ensure their independence and compensa/on policies
for partners
Auditors shall produce their report within at least one month from the date of receipt of the
accounts signed by the directors in which to submit their report. If, as a result of the report, the
directors must alter the financial statements, the auditor shall extend his/her report and add
the changes made.

Approval of financial statements and applicaTon of the results

The general mee/ng shall approve the financial statements and shall resolve upon the
applica/on of the results based on the approved balance sheet. To this purpose the no/ce of
the mee/ng shall men/on the right of shareholders or partners to apply to the company to
obtain, immediately and cost-free, the documents that have to be submiSed to the general
mee/ng for approval, and, as appropriate, the management and auditor’s reports (art. 272).

Profits and losses shall be distributed on the basis of the approved balance sheet. The LSC
establish strict rules about distribu/on of profits or the payment of previous losses in art. 273
to 278.

General ideas are as follows:

The star/ng point is that it is necessary to maintain the value of the corporate equity at least as
the company’s capital. The requirements for legal reserves of any kind must be also be fulfil
before distribu/on of dividends. In the event of losses in preceding years that reduce corporate
equity to less than the company’s capital, profits shall be used to offset such losses.

Once fulfilled all the requirements profits may be divided to shareholders and partners. In SA,
dividends shall be paid in propor/on to the capital paid-in by each share (art. 275-276). In SRL,
dividends shall be paid in propor/on to the capital each of the members owns in the company.
The /me and the manner in which the dividends shall be paid to shareholders and partners
shall be established by the general mee/ng.

Interim dividends can be distributed both to the shareholders and partners. The requirements
to be fulfilled are set in art. 277.

Deposit of accounts
In the month following the approval of the annual accounts, trading companies must present a
cer/ficate of the agreement adopted by the General Shareholders Mee/ng on the approval of
the annual accounts and the applica/on of the result for deposit with the Commercial Register
corresponding to the corporate domicile. The said cer/ficate shall include a copy of each of the
said accounts, as well as the management report and the auditors' report when the company is
obliged to have an audit or if the audit has been carried out at the request of the minority.
Should one or more of the annual accounts have been prepared in abridged format, this shall
be recorded on the cer/ficate, together with the corresponding reason. The ICAC holds the
power for penalizing trading companies for breach of their obliga/on to deposit their annual
accounts with the Commercial Register.
2. AMENDMENT OF BY-LAWS
Amending bylaws essen/ally changes the contract you've made with your fellow members
about how your organiza/on operates and we can say that it is one of the most important
decisions the company can adopt. It is easy to understand then that it shall require special
condi/ons for its validity. In the first place, it is important that all members are informed so as
to weigh in on a change. In the second, it is of the maximum importance that the rights of all
members con/nue to be protected.

- Formal requirements are as follows:

a) The proposal can be made by directors or partners.
b) The proper no/ce for a bylaw amendment contains 3 fundamental components:
- the proposed amendment precisely worded
- the current bylaws
- the bylaw as it will read if the amendment is adopted
c) The mee/ng quorums and majori/es to adopt a valid decision are those contained in arts.
194 and 201 for S.A and 199 for S.R.L.
d) The decision must be laid in a public document, recorded in the RM and published in the
Official Journal of RM.

- The protecTon of partners and shareholders

Art. 291 to 294 establish a set of rules to protect partners and shareholders in some of the
most important altera/on of the by-laws.
In case the amendment proposes new obliga/ons for members of the company, it cannot be
approved without the consent of all the members concerned (art.292).

When amendments refer to the individual rights of partners in SRL, they cannot be approved
without the consent of all the members concerned.

Should the amendment affect directly or indirectly the rights of a specific class of shares it shall
only be valid when approved by a majority of the shares pertaining to the class in ques/on.
When several classes are involved, a separate decision shall be required for each (art. 293). The
decision by the shareholders affected shall be subject to an addi/onal approval in the general
mee/ng by the majority required for amending the by-laws (art. 293.2).

Should the amendment refers to certain circumstances of a Limited Partnership by shares, such
as the appointment of directors, a change in the arrangements for company administra/on or
corporate purpose, or extension of the life of the company beyond the term established in the
by-laws, the decision must be adopted by the general mee/ng and with the consent of all the
general partners (art. 294)
3. CAPITAL INCREASE
The general mee/ng shall authorize any increase in the capital with the requirements set forth
for the amendment of the by-laws.

Capital increase can be done by 2 different methods:

1. The issue of new shares in S.A or stakes in S.R.L or
2. The increase of the nominal value of the share or stakes

Considera/on for capital increase may consist of:

- Both monetary and non-monetary contribu/ons to capital.
- By the seong of credits owned by the company.
- Reserves or profits can also be used for the increase
- Power vested in directors.

In S.A, the general mee/ng may adopt decisions delegate to directors the power of increasing
the capital within the limits of /me and amount established by the mee/ng and the law
(art. 297).

Increases with monetary contribuTon requires that the previous shares or par/cipa/on units
are fully paid in.
- No/ce that capital units in S.R.L are fully paid in form the moment of the forma/on of the
company.

Increases with non-monetary contribuTons need a report to be prepared by the directors.

Such report shall detail the nature and characteris/cs of the contribu/on and the number and
par value of shares or par/cipa/on units given in exchange (art.300)

Increases through the set-offs od credits (compensación de créditos) require that least 25% of
the credits to be set-off are due and payable, and the dates of maturity for the remaining 75%
does not exceed of 5 years (art.301).

Increased charged to reserves: for this kind of capital increases only unrestricted reserves,
paid-in surplus and the por/on of the legal reserve exceeding 10% of the increased capital can
be used (art.303).
- The opera/on shall be based on a balance sheet approved by the general mee/ng as of a date
no more than 6 months prior to the decision to increase capital, verified by the company’s
auditor or by an auditor appointed by the Mercan/le Registry, in companies not obliged to
audit their accounts.

In case of capital increase by issuing new shares or stakes, the holders of exis/ng shares or
units have a pre-emp/ve right for the subscrip/on of a number of new ones in propor/on to
those they hold (art.304).
Pre-emp/ve rights are transferable under the same condi/ons as transfer of shares or capital
units (art. 306-307).
Pre-emp/ve rights may be excluded where the interests of the company so demand (art.308).

Aher the decision to increase capital is implemented, the directors must redrah the by-laws to
reflect the new sum, lay it on a public document and register in the Mercan/le Register. Both
the decision adopted by the mee/ng and the implementa/on of the increase shall be entered
simultaneously in the Mercan/le Register (art. 315).
4. CAPITAL REDUCTION
Capital reduc/on is, like capital increase, a formal amendment of bylaws and the general
requirements for reduc/on must be in accordance of the requirements applicable to
amendments of by-laws, as we have seen in the precedent sec/on.

There can be many reasons to jus/fy the reduc/on of the capital figure in corporate
companies. From the excess of patrimonial assets for the business to big losses. All of them
imply nega/ve effects for creditors and third par/es. In the case of excessive capital, creditors
may perceive the return of capital to the members of the company as a loss of guarantees for
the payment of their credits. In the case of big losses, creditors have already suffered a loss.
Some/mes capital reduc/on is voluntary, others it is compulsory. In any of these situa/ons,
once approved by the mee/ng and prior to its implementa/on, the decision to reduce capital
in an SA shall be published in the Official Journal of Mercan/le Register. All different types are
regulated in LSC in art. 317 to 345.

Types of reducTon
The purpose of the capital reduc/on may be:
a) the return of contribu/ons,
b) the write-off of unpaid contribu/ons,
c) the crea/on or increase of the legal reserve, or
d) the reestablishment of the equilibrium between the corpora/on’s capital and the
net equity reduced by losses. Capital reduc/on shall be compulsory when losses have reduced
the net equity of the company below the 2/3 of the corporate capital and a fiscal year has
passed without the net equity being established (art.327.1).

Formally, it can be realized by the lowering of the par value of the shares, by their redemp/on,
or by grouping and exchanging them (art.317.2).

Reduc/on in case of losses and provision of legal reserve are set in arts.320 to 328.
The main ideas are:
a) Principle of equal treatment: all members shall be affected in equal propor/on to their par
value.
b) Under no circumstances may the reduc/on entail refunds to partners or shareholders
(including cancella/on of sums owed on outstanding contribu/ons in S.A).
c) Capital reduc/on cannot be done in case of exis/ng reserves
d) Capital reduc/on shall be based in a balance sheet formulated (and audited) no more than 6
months prior to its approval.

Reduc/on to return contribu/ons is regulated in art.329 to 330, the main ideas are:
a) Individual consent of holders of stakes (or majority of shareholders affected in S.A is a
condi/on for the valid agreement of reduc/on.
b) Contribu/ons must be refunded in propor/on to the amount paid for the stakes or shares,
unless other agreements are unanimously approved.

Creditor’s protecTon
In S.R.L, partners whose contribu/ons have been refunded shall be jointly and severally liable
for the payment of company debts prior to the date on which the reduc/on was effec/ve.
Liability is limited to the amount refunded and lasts for a 5 year period (art.331).
This rule shall not apply in case a special reserve is provided. Bylaws can establish a
complementary protec/on by means of including the creditor’s right to challenge reduc/ons
(in a similar way as for S.A).
In S.A, following the publica/on of the resolu/on to reduce capital, and within 1 month period,
the creditors of the company are en/tled to oppose the reduc/on un/l they receive guarantee
enough for any credits that are due and payable on the date of such resolu/on.

Creditors may not oppose the reduc/on in the cases established by the law.
 LESSON 13 – PARTNER OR SHAREHOLDER EXIT AND EXCLUSION.
DISSOLUTION OF THE COMPANY
STRUCTURAL CHANGES

1. PARTNERS OR SHAREHOLDERS EXIT AND EXCLUSION

Exit or exclusion of members means that the contract between them and the company is
rescinded by contrast to those situa/ons in which they have the opportunity to sell their part
to others. In this last case, the company does not suffer in its integrity because the leaving
member is being replaced by the entering new member while in the first case the company
suffers a sort of mu/la/on because one of its members leaves the organiza/on bringing his
part with him. This case implies a par/al dissolu/on.

There are two different situa/ons: exit, when in certain cases, the partner or shareholder has
the right to leave the company and the exclusion, as a punishment in case of breach of their
obliga/ons. LSC sets the legal causes for exit or exclusion. Bylaws can establish addi/onal
causes.

Exit of partners or shareholders (Art.346-349)

Shareholders have the right to leave to exit when they did not vote to the decision for:
a) Subs/tu/on or important amendment of the corporate purpose
b) Extension of company term
c) Company reac/va/on
d) Crea/on, amendment or early cancella/on of ancillary commitments, unless otherwise
provided in the by-laws.
e) In transforma/on of the company, under certain circumstances
f) In reloca/on of the registered office abroad

Partners have, in addi/on, the right to exit when they did not vote in favor of amendment of
the arrangements for the transfer of capital units.

Exclusion of partners
Partners can be excluded when:
a) they voluntarily fail to honour their ancillary commitments, or
b) managing partners who breach the prohibi/on on compe//on or
c) partners are ordered in an un-appealable court ruling to indemnify the company for
damages deriving from acts that run counter to this act or the by-laws, or
d) in the case partners breach of due diligence.

In such cases, a favourable decision of the general mee/ng is necessary. If the

company fails to ini/ate proceedings for exclusion, within one month period from the decision,
any partner or shareholder who voted in favor of such decision shall be enable to do so.

The implementaTon of the decision

Once the decision adopted, the part in the company of the leaving partners or shareholders
have to be evaluated for reimbursement. Where the shares are listed in an official market the
value shall be the average quota/on price for the last quarter. In other cases, an external
auditor shall evaluate them. Reimbursement can be demanded within two months from
evalua/on date. As a result of leaving – and being reimbursed- the company one of its member
a reduc/on of capital shall formalised.
- Creditors’ protec/on is governed in a similar way as for capital reduc/on.
2. DISOLUTION
Dissolu/on and liquida/on of a company is the procedure by means of which a company is
brought to an end and the company’s assets are realised and distributed to its creditors and
members. The process is governed by arts. 360 to 400 LSC.

The process begins with the existence of a reason for bringing the company to an end. Once
adopted the resolu/on for the dissolu/on, the company enters into liquida/on. When
liquida/on is finished all the record of the company in the Mercan/le Register must be
cancelled.

Grounds on dissoluTon
Grounds on dissolu/on are regulated in art. 360 to 368 LSC. The different reasons for
dissolu/on need to be admiSed in the shareholders mee/ng which shall adopt the resolu/on
to dissolve the company. It is not necessary the decision of the mee/ng in case of:
a) Existence of an expiry term
b) Lapse of one year aher adop/on of the decision to reduce capital to below the legal
minimum in compliance with the legisla/on and the company has done nothing for
transforma/on, dissolu/on or increase of capital.
c) The ini/a/on of the liquida/on phase in insolvency proceedings

It will be necessary the decision of the mee/ng:

a) upon interrup/on of the ac/vity or ac/vi/es that cons/tute its corporate purpose; in
par/cular, inac/vity for over one year shall be deemed to cons/tute interrup/on;
b) upon termina/on of the mission that cons/tutes its corporate purpose;
c) where achievement of the corporate purpose is manifestly impossible;
d) due to governing body stand s/ll, rendering it impossible to conduct business ;
e) 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 applica/on for insolvency
protec/on is not warranted;
f) due to a capital reduc/on to a sum below the legal minimum, except as in compliance with a
legal provision;
g) because the par value of non-vo/ng stakes or shares exceeds one half of the paid-up capital
and the due propor/on is not recovered within two years;
h) for any other cause established in the by-laws.

Dissolu/on decision shall be adopted by the general mee/ng following the requirements of art
198 in SRL and 193 and 201 in SA. Directors are obliged to call for the mee/ng upon the
existence of a reason for dissolu/on otherwise they shall be jointly and severally accountable
for corporate obliga/ons incurred aher the legal cause for dissolu/on is forthcoming (art.367).
The dissolu/on of the company should be registered with the Mercan/le Register Office
(art.369). The legal personality of the company shall con/nue, for the purposes of the
liquida/on, un/l the company is closed.

Aher the dissolu/on the authority of the directors come to an end and the liquidators shall
assume the representa/on of the company and to enter into new contracts so far as it is
necessary to wind up the firm’s affaires and complete transac/ons that have begun but are
unfinished at the /me of dissolu/on.
LiquidaTon
Upon dissolu/on, the company shall start being liquidated following the rules set in arts. 371 to
394 LSC.

Liquidators are appointed by the shareholders mee/ng (art.376). The func/on of the
liquidators are to make an inventory and a balance sheet, the custody of the books of the
company, complete business and transac/ons, dispose of the corporate assets, demand
payments, pay creditors and shareholders and represent the company.

Liquidators shall inform the shareholders and creditors of the liquida/on process. Once the
liquida/on is completed the liquidators shall prepare a final balance sheet and determine the
por/on of company assets to be alloSed to each share.

The balance sheet has to be approved by the shareholders mee/ng. Once the balance
approved and not being challenged the company assets will be divided following the rules
established in the bylaws. In any case, the liquidators may not distribute any assets of the
company unless all creditors have been paid or the total amount due to them set aside. The
remaining assets shall be divided in propor/on to the paid up capital of each share.

The liquidator shall be responsible, with regard to both the company and third par/es, for the
harmful consequences of the errors commiSed thereby in fulfilling his du/es.

CancellaTon of registraTon
Upon approval of the final balance sheet the liquidators shall request the Mercan/le register to
cancel the records referring to the company. They also have to deposit the books and
documents of the company.
- The cancella/on of registra/on means the end of the company.

3. STRUCTURAL CHANGES
Structural changes are those changes in the structure of the company “understood to be
corporate altera/ons that involve more than mere amendments to the by-laws, i.e., that affect
company ownership or personality”. This is defini/on given by the Ley 3/2009, de 3 de abril,
sobre modificaciones estructurales de las sociedades mercn/les (Act on structural changes in
trading companies).

Structural changes include transforma/on, merger, divestment (division or split off) and total
assignment of assets and liabili/es. The act also regulates the interna/onal reloca/on of
registered office. The act is applicable to all companies regarded to be trading companies (art.
2).
TransformaTon
Transforma/on (or reorganiza/on) of the company is the manner in which the company
changes from one type to another type of business organiza/on. By virtue of transforma/on, a
company adopts a different corporate status while conserving its legal personality (art. 3
LMSM). Transforma/on does not change the legal personality of the company, which shall
con/nue in the new form

Art. 4 established all the possibili/es of transforma/on of trading companies. They are:

a) A registered trading company into any other manner of trading company.

b) A registered trading company or a European economic interest grouping into an
economic interest grouping. An economic interest grouping into any manner of trading
company or a European economic interest grouping.
c) A civil corpora/on into any manner of trading company.
d) An S.A company into a European company. A European into an S.A
e) A coopera/ve into a trading company and a registered trading company into a
coopera/ve.
f) A coopera/ve into a European coopera/ve and a European coopera/ve into a
coopera/ve.

It’s up to the general mee/ng to adopt an agreement for the transforma/on following the
requirements and formali/es in the legisla/on applicable to the company to be transformed. It
is of the maximum importance the informa/on given to partners or shareholders in order to be
aware of the consequences of transforma/on (art.9). The agreement must include the
company’s balance sheet submiSed for the transforma/on opera/on (art.10).

The agreement shall be published in the Official GazeSe of Mercan/le Register and in a daily
newspaper widely circulated in the province where the company’s registered office is located
(art. 14.1)

Transforma/on shall not of itself release shareholders or partners from compliance with their
commitments to the company (art. 11). Exit rights for partners or shareholders may be
exercised, especially in those cases where their obliga/ons are increased, such as the change
where they have to assume unlimited liability (art. 15-16 and 21). With respect to shareholders
or partners who by virtue of transforma/on assume personal and unlimited liability for
corporate debts they shall become liable for debts incurred prior to transforma/on.
- Unless corporate creditors have explicitly consented to transforma/on, the liability of
shareholders or partners who were personally accountable for the transformed company’s
corporate debts shall subsist in respect of the debts incurred prior to company transforma/on.
Such liability shall lapse five years aher publica/on of transforma/on in the Official Journal of
the Mercan/le Registry.
Mergers
- General ideas
A merger is the result of the combina/on of two or more companies. A merger means the
transfer of all assets and liabili/es of a transferring company, the dissolu/on without winding-
up, and the grant of shares in the acquiring company to the shareholders of the transferring
company. In the Spanish Law (art. 23 LSC) types of mergers are as follows:
- Two or more companies, being dissolved, transfer all their assets to a new created company
- The acquisi/on of one or more companies by an exis/ng company, which will take over all the
assets of the companies acquired.

The merger is a process in which all the companies to be merged have to be involved. Directors
of the par/cipa/ng companies will, jointly, draw up a drah or plan of the merger.

The drah shall be approved by the shareholders mee/ng. The call to the mee/ng shall include
a large amount of informa/on for the shareholders such as: the plan, reports of independent
experts (experts’ reports), a report of directors concerning the drah (drah report), financial
statements of the different companies, the balance sheet. Informa/on is basic for the
protec/on of shareholders, creditors and employees.
The resolu/on to merge shall be adopted with the requirements needed for the amendment of
bylaws.

The merger must be published and the creditors of the companies have the right to oppose the
resolu/on un/l they do not receive guarantee enough for the payment of their credits.
Merger must be granted in a notarial deed and registered in the Mercan/le Register.

- Mergers and CompeTTon Law

While companies combining forces (referred to below as mergers) can expand markets and
bring benefits to the economy, some combina/ons may reduce compe//on. The fact of
combining the ac/vi/es of different companies may allow them, for example, to develop new
products more efficiently or to reduce produc/on or distribu/on costs. Through their increased
efficiency, the market becomes more compe//ve and consumers benefit from higher-quality
goods at fairer prices.
However, some mergers may reduce compe//on in a market, usually by crea/ng or
strengthening a dominant player. This is likely to harm consumers through higher prices,
reduced choice or less innova/on. Increased compe//on within the European single market
and globalisa/on are among the factors which make it aSrac/ve for companies to join forces.
Such reorganisa/ons are welcome to the extent that they do not impede compe//on and
hence are capable of increasing the compe//veness of European industry, improving the
condi/ons of growth and raising the standard of living in the EU. The objec/ve of examining
proposed mergers is to prevent harmful effects on compe//on. Mergers going beyond the
na/onal borders of any one Member State are examined at European level. This allows
companies trading in different EU Member States to obtain clearance for their mergers in one
go.

Divestment (split off / division)

Split off means: the division of the patrimonial assets (equity) of the company and its transfer
in block to a new created company or its acquisi/on by one already exis/ng. It can also be
made dividing and transferring part of the assets of the company to new or exis/ng company
or companies. The part of the assets not being transferred is kept by the spliong off company,
which shall not be dissolved.
- Rules governing split-offs are basically those governing mergers.
LESSON 14 – SPECIAL TYPES OF COMPANIES
1. SOLE MEMBER COMPANIES
Under the Law, which applies in this respect to both S.A.’s and S.L.’s, either form of business
en/ty can be set up as, or can subsequently become, a company having a sole shareholder
(S.A.) or sole par/cipa/on unit holder (S.L.), i.e. a wholly- owned subsidiary.

The company shall be registered in the Mercan/le Register and from that moment the sole
member shall not be responsible for the debts of the company. Should single member status
fail to be entered with the Mercan/le Registry within six months of the acquisi/on thereof, the
sole partner or shareholder shall be held personally, unlimitedly and jointly and severally liable
for any company debt incurred while such situa/on persists (art. 14 LSC).

Such companies are subject to a specific regime involving special repor/ng requirements and
registra/on requirements:
a) A company with a single owner has to be acknowledged. LSC imposes the obliga/on to
record such status in all documenta/on, correspondence, purchase orders and invoices, as well
as in all announcements that must be made pursuant to the exis/ng legisla/on or the company
by-laws (art.13.2 LSC).
b) The sole member has all the powers of the general mee/ng and can adopt resolu/ons that
shall be recorded in a registry book for this purpose (art. 15 LSC)
c) Contracts between the sole member and the company must be in wri/ng and must be to be
recorded in a special company register (art.16 LSC).

2. SOCIEDAD LIMITADA NUEVA EMPRESA

This is a special type of limited liability Company, intended to encourage new small and
medium-sized enterprises by making it easier for them to both set up and do business. For
example, it is possible to form and start up an SLNE company on-line using a Single Electronic
Document (DUE). An S.L.N.E. can also do its accoun/ng and taxes on-line.

Its regula/on is contained in art. 434-454 LSC.

- This type of company was introduced by Law 7/2003, April 1rst, with the purpose to
encourage the crea/on of small and medium size companies and simplify the requirements for
their incorpora/on and for the development of their ac/vity.

The capital stock may not be less than 3,012€ or more than 120,202€, and it can only be paid in
money. The corporate purpose is general in nature, in order to enable it to do business with
greater flexibility. The shareholders of an S.L.N.E can only be individuals and there can be no
more than five at the /me of forma/on. Lastly, the members of the managing body must be
shareholders.

The company name will include the first name and two last names (Spanish surnames include
the family names of both parents) of one of the founding shareholders followed by an
alphanumeric code and the words "New Business Limited Company" or the abbrevia/on
"S.L.N.E."

The main features that dis/nguish this S.L.N.E. from the limited liability company are as
follows:
d) The S.L.N.E. can be registered, by means of the public deed of incorpora/on and an
electronic document, in just 48 hours from the execu/on of said deed.
e) The company name will include the first name and two last names of one of the
partners followed by an alphanumeric code, and also the men/on “Sociedad Limitada Nueva
Empresa” or the abbrevia/on “S.L.N.E.”. The corporate name shall be modified if said individual
ceases to be partner.
f) The capital stock shall not be lower than €3,012 or superior to €120,202, and it will only be
paid up through contribu/ons in cash. If the capital stock increases over €120,202, the
company shall be transformed.
g) Only individuals can be partners of a New Limited Liability Company. In the moment of its
incorpora/on, the S.L.N.E. shall not have more than 5 partners, although this number can be
increased later. A partner may only be sole partner in just one S.L.N.E.
h) ThemembersohheAdministra/onBodymustbepartnersohhecompany.This Body will never
adopt the form of a Board of Directors.
i) The corporate purpose of the company shall be one or all the ac/vi/es established in Law
7/2003, although any par/cular and different ac/vity might be included.
j) The S.L.N.E. has the possibility of fulfilling accountant and fiscal du/es by means of a single
register.
k) Law 7/2003 indicates that the S.L.N.E. will be able to postpone the payment of some taxes
and/or withholdings and prepayments between one and two years without having to grant any
security but paying interests for delayed payment.

3. EUROPEAN COMPANY
A European Company (S.E.) offers companies that operate in several EU Member States, the
op/on of being established as a single company for the purposes of EU law, and of being able
to operate in the EU under a unified management and repor/ng system. The S.E. makes it
possible for companies to reduce their overall administra/ve costs with a legal structure that is
compliant with EU Regula/ons. In general terms, the SE is an effec/ve investment vehicle for
those companies that already have a business presence in the EU and wish to invest in Spain.

The subscribed capital may not be less than €120,000 although the minimum required capital
can be higher in specific cases contemplated under Spanish legisla/on for companies that carry
out certain ac/vi/es (i.e. lending ins/tu/ons).
- Spanish regula/ons for corpora/ons shall also apply to shares’ subscrip/on, payment,
ownership and transfer.
The corporate name of shall be preceded or followed by the abbrevia/on SE. It must be
registered at the Mercan/le Registry of its corporate address. The liability of the shareholders
is limited, in principle, to the capital subscribed.

The forma/on of an SE need for the existence of a European mul/na/onal nature on the
process of associa/on that would give rise to the founda/on of a SE. In this sense, although
different procedures are regulated to incorporate a SE, there are two common and unavoidable
requirements aiming to keep this European mul/na/onality:
a) only companies incorporated under the laws of a Member State are allowed to create a SE,
being also required that their corporate address and the effec/ve management have to be
found within the EU, and
b) at least two of the companies intervening must be regulated by the law of two different
Member States.

An SE is to be always considered as a deriva/ve company since its founda/on

can only be carried out by other pre-exis/ng companies. That is to say, individuals are not
allowed to create this type of company. The forma/on process can only come from:
a) Merger: Merged companies shall be governed by the law of different Member States.
b) Incorpora/on of a holding SE: Provided that at least two of the companies are governed by
the law of a different Member State, or for at least two years have had a subsidiary company
governed by the law of another Member State or a branch situated in another Member State.
c) Incorpora/on of a subsidiary SE: Provided that at least two of the companies are governed
by the law of a different Member State, or for at least two years have had a subsidiary
company governed by the law of another Member State or a branch situated in another
Member State.
d) Transforma/on of an exis/ng SA: Provided that for at least two years it has had a subsidiary
company governed by the law of another Member State.

The managing bodies are:

a) the Shareholders’ Mee/ng; and
b) the managing body that can be organized either in the form of a managing body
(one-/er system) or either in the form of a managing body and an oversight body (two-/er
system).

4. LISTED COMPANIES
The shares are represented by books entries.

The term for the exercise of pre-emp/ve rights in case of capital increase can be shorted by the
Directors.

The vo/ng rights can be sold to a third party for a limited period of /me.

They can issue redeemable shares.

Disclosure of private agreements between shareholders

- Shareholder private agreements shall be understood to be those agreements which
include regula/ng the exercise of vo/ng rights in Shareholders' Mee/ngs, or which restrict or
condi/on the free transferability of listed companies' shares.

General shareholders mee/ng shall approve a specific Regula/on which may address any
maSer rela/ng to the Mee/ng in connec/on with the maSers regulated by Law and Ar/cles of
Associa/on.
Board of Directors: shall issue a regula/on governing the internal system and the func/oning of
the Board itself. The directors may not exercise the right to vote in the case of existence of a
conflict of interests.

Issuing companies whose shares or bonds are listed on official secondary securi/es markets
must have an Audit CommiSee.

Listed companies must publish a corporate governance report on a yearly basis. The report
must be published as a significant disclosure.

Listed companies must comply with the disclosure requirements imposed on them by the
Spanish Public Companies Law by any technical, computerized or telema/c means, without
prejudice to shareholders rights to request informa/on in print. Listed companies must have a
website for shareholders to exercise the right to informa/on.