FINAL EXAM

BUSINESS LAW

Mercedes Urdániz Zalba

1º primavera
UNIT 1:

1. DEFINITION OF BUSINESS LAW

Is part of private law, part of the legal system that involves relationships between individuals. It is a
successor of law merchant, and it is private and special. Its content has been variable along the different
periods of history. The term business is not subject to the law, is the natural or legal person acting in the
market.

2. THE IMPORTANCE OF THE CONSTITUTION

PRINCIPLE of ``free enterprise within the framework of a company´´: public authorities may guarantee and
protect its exercise and the defence of productivity in accordance with the demands of general economy.

The part of the constitution dealing with the basis of the market is known as Economic Constitution

3. SOURCES OF BUSINESS LAW

They are the bodies where the law is laid down, as well as various ways in which law comes into existence

• General: law, costumes and general principles

• Commercial: commercial law, commercial usages and customs, civil law, general principles

In first place we have to apply the Commercial Code and in the second place the usage or customs of the
business, and only in third place we could apply the civil code.

The most important legal rule is the Commercial Code from 1885, successor of 1829 code. There are many
special legislations that completes the code: lay de sociedades de capital, ley cambiaria y del cheque…

4. EUROPEAN UNION

INSTITUTIONS
• Council: community’s primary decision maker and legislator
• Commission: executive arm of the community
• European parliament
• European court of justice: final arbiter of legal disputes arising under community law

SECONDARY SOURCES OF LAW

• Regulations: direct effect for citizens, bending for everybody all over the EU from publication in OJ of EU
• Directives: general goals to be implemented by Member States, not direct affect for citizens, binding for
citizens after Member States introduced in its own legislation
• Decisions: particular acts, binding only for those to whom they are addressed to

TREATIES
European community based on 3 treaties: European Coal and Steel treaty, European Community Treaty and
the European Economic Community Energy treaty. They are the community treaties

1
The European union was established by the Maastricht treaty (7/2/1192) signed by the 12 members of the
European Community. This European union is based on three pillars: the existing EC treaties, a Common
Foreign and Security Policy and the fields of justice and home affairs. The main objective is the strengthening
of economic and social cohesion and the establishment of economic and monetary union, including a single
currency.

+ Amsterdam treaty, nice treaty, Lisbon treaty.

UNIT 2: THE BUSINESS ORGANISATION: THE SUBJECT

HOW TO BECOME A SOLE TRADER

There is no a special legal procedure. 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 organization

- Needs legal capacity to enter into contracts, so legal age (18) and have free disposal of their assets
- Minors cannot begin a business, only continue if they inherit
- Develop an economic-business activity in a continuous way
- In your own name: directors act in the economic activity but are not traders because they act in the
name of the trader

There is a special regime in the case the sole trader is married in order to protect the patrimonial assets.
Assets divided into 3 categories:

- Personal properties of the married trader and common assets acquired from the business: always
bound
- Other common assets: will be bound only if the non-business spouse gives a general authorization
- Assets only owned by each: only of the non-business spouse can be bound by a specific
authorization

FACTORS

It 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 and his authority includes a wide range of actions as if he was the
owner. He is authorised to manage, direct and to enter into contracts concerning its business. His general
authority can be limited.

Directors or mercantile factors have the authority to act in the name of the principal. It can arise by prior
consent of the trader given in a written oral way or even by subsequent consent of the trader who will give
his ratification to the acts of the factor.

In 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. Any claim to compel them to fulfil shall be enforced on the
assets of the principal, establishment or company. If the factor negotiates using his own name, he will be
bound with the third party.

If they negotiate without that authorisation, the profit from the negotiation shall be for the principal and
the losses shall be borne by the factor. Trade factors shall be liable to their principals for any damage they
may cause to their interests, due to have proceed with malice, negligence or breach of orders or instructions

2
Termination comes from:

• Completion of fixed term or task

• Mutual agreement
• By revocation of the authority made by the principal
• Death or insanity of the factor

When the relationship comes to an end the contracts and acts entered into prior to termination are valid
(must be notified to the factor)

+ mirar duties and rights of parties (no creo que entre)

UNIT 3: MERCANTILE REGISTER

Which are the effects of the registration of an act in the Commercial Register?

Legitimation and declaratory value. They have effect on third parties after the registration and 15 days after
the publication in the BORM. From that moment, third parties cannot argue that they didn t́ know what is
recorded. The act is presumed to be valid and exact. This presumption can only be destroyed by the
tribunals

Explain the meaning of the following sentence in art. 20.1 in the Spanish Code of Commerce: “The content
of the Registry is assumed to be exact and valid”.

The books only declare the existence does not legitimate the facts nor make valid something that is invalid.
However, this presumption can be destroyed when the tribunals declare the act invalid or null. This is the
legitimation principle

What happens if a company is not registered in the mercantile register?

UNIT 5: ON COMPANIES

Companies may only have one name. The company name must not be the same as any other previously
existing neither shall suggest connection with others by using terms or expressions leading to confusion. The
name cannot be similar to those used by official institutions, government or local authorities. 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 activities or the place where the
administration is held

The nationality determines the law governing the company. The main rule for the attribution of nationality
is art.15 Cco and 8 LSC, that establishes ``all corporate enterprises with registered offices on Spanish soil,
irrespective of the place of formation, shall be Spanish and subject to this act´´

3
UNIT 6: PARTNERSHIPS

GENERAL PARTNERSHIP

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

LIMITED PARTNERSHIP

It 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 can be divided into participation units or shares.

GENERAL LIMITED
Created by an agreement between partners The same conditions in the memorandum
and it is known as a memorandum or articles as in the general partnership. In addition:
of association. Must be drawn up in a formal name of the company can only be
FORMATION
deed. compound by the name of the general
OF
partners and the management and
PARTNERSHIP
representation can only be realize by the
general partners.

Shall include the proper name of one or more May be incorporated the names of one or
partners, which must be followed by ``y
BUSINESS
compañia´´. Forbidden to include the names of``Sociedad en comandita´´ or S.C/S.Com. it
NAME
other individuals who are not partners
Just as a consensual nature of the partnership
relationship allows the parties to make the
agreement in such terms as they wish, so they
ALTERATION are equally free to alter those terms. It shall be
OF THE taken by unanimous agreement of the partners
PARTNERSHIP
AGREEMENT
Duties:
• Contribution: may be in capital or
work. Capital partners/Industrial
partners
• No competition with the partnership:
RIGHTS AMD partners shall not compete with the
DUTIES OF partnership business without the
THE consent of the other partners
PARTNERS Rights:
• Take part in the management
• Right to information: all partners are
entitled to have access to the
partnership´s books
• Right to share profits:
more partners, which must be followed by
is prohibited for the limited partners to be
included in the business name
• 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
• Decision to alter the terms of the
memorandum shall be taken by
unanimous agreement (for general
and limited partners)
Limited partners are obliged to contribute
to the capital of the partnership. Can be
made in money or in another asset.
Only general partners have the right to
participate in the managing of the
business.
Limited partners shall have the right to
obtain, once a year, communication of the

4
 Profits and losses are not to be shared partnership´s general accounts,
equally. Will be divided in proportion partnership books and other documents
to the partner´s interest in the
partnership Sharing of profits shall be made following
*Industrial partner shall receive the same as the same criteria as for the general
the minor capital partner. He won’t have to partners, they will receive in proportion to
pay for losses the partner´s interest in the partnership
The power to represent the partnership may • Limited partners have Expressly
be given to one or more partners and the forbidden acting with third parties
partnership agreement may expressly limit the in the name of the firm
RLTHPS
faculty to use the firms name. • Limited partners shall be liable for
the debts of the partnership only in
BETWEEN
Partners liability: all the partners in a respect of the amount of their
PARTNERS
partnership shall have unlimited joint liability contribution
AND 3RD
for the debts of the partnership. When
PARTIES
damages are recovered from one partner, the
other partners are under duty to contribute to
the amount paid in proportion to the partner´s
interest in the partnership
DISSOLUTION * Are the same for general and limited
Upon dissolution, the partnership shall start partnerships
being liquidated. The value of the partnership
property is realised and the proceeds are
applied in the following order:
• Paying debts to outsiders
• Paying the partners any advance made
to the firm beyond their capital
contribution
• Paying the capital contribution of the
individual partners
• Any residue is divided between the
partners in the same proportion as
they shared in profits
Liquidators shall be responsible, with regard to
both the company and third parties, for the
harmful consequences of the errors committed
thereby in fulfilling duties

*It may have been established for a particular purpose and that purpose been achieved, or one of the
partners might wish to retire from the business…

• The entire loss of the capital

• The liquidation of the partnership declared insolvent
• The death of one of the partners
• When any of the partners who is a manager suffers of mental incapacity or any other where the
partner is no longer able to manage his affairs
• When a partner, declared insolvent under the insolvency, act enters into liquidation process
• If the partnership is of indefinite duration, any partner can give notice of an intention to dissolve it

5
UNIT 7: SOCIEDADES DE CAPITAL, FORMATION

Capital is divided in transferable shares, and there is an absence of responsibility or shareholders for the
debts of the company, which is entirely responsible for its debts and obligations

• If the partners are interested in a smaller company, closer relationship between the members of the
company, and easiest operational system and less expensive costs of operating, it will be better an SRL
• 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 activities reserved to SA by the legislation (insurance, banking, pharma, leasing…) is
better an SA
• Both regulated in the Corporate Enterprise Act

BASIC CHARACTERISTICS OF SA AND SRL

SA is a corporation whose capital is divided into shares and shall be over 60000$. The capital consists by the
contributions made by the shareholders. 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$. The capital consists of the
contribution of the partners. Partners are not liable for the debts of the company.

No matter the purpose of the business, the company shall be ``commercial organisation´´. Upon
registration, capital companies shall become a legal entity

REQUIREMENTS OF AN SA
- capital minimum 60.000€, divided in shares. Fully subscribed and paid 25%, at least, at the moment
of the creation of the company.
- contributions of shareholders shall be economic valuable: capital, not work
- shareholders are not liable for the debts of the company
- the name: any, followed by the expression: SA, Sociedad Anonima
- notarial deed: the consent of shareholders to create an SA, contributions of shareholders, bylaws,
and registration in Mercantile Register

REQUIREMENTS OF AN SRL
- capital minimum 1€, divided in stakes or participations units. Fully subscribed and fully paid at the
moment of the creation of the company.
- contributions of partners shall be economic valuable: capital, not work
- partners are not liable for the debts of the company
- the name: any followed by the expression: SL, SRL, Sociedad de responsabilidad limitada
- notarial deed: the consent of partners to create an SL, contributions of partners, bylaws
- and registration in Mercantile Register

BY LAWS
- in the case of SA: shares the bylaws shall express the proportion not paid-in and the number of
shares in which the capital is divided

6
 - in SRL: mention shall be made of the number of stakes into which the capital is divided, their per
value, consecutive numbering and where such stakes are not equal, the rights granted thereby to
their holders and the proportion of capital owned.

There must be included in the by-laws:

- restrictions on the free transferability of the shares (SA) or the specific rules for the transfer of
stakes (SRL)
- Ancillary obligations, stating the content and whether or not they are remunerated and
penalties for breach thereof

CORPORATION IN FORMATION

- incorporation in a single procedure: The notarial deed is executed by all the founders and all of
them have to subscribe the whole of the shares. The subscribers of the shares are the first
shareholders and founders of the corporation
- incorporation in phases: Involves an offering to the public at large by the promoters to subscribe
shares before the execution of the public deed of incorporation. Advertising or financial brokers may
be used by the promoters

FAILURE TO REGISTER

The lack of one or more essential requirements of the agreement recorded in the notarial deed means the
invalidity of the company and thus its nullity. However, once it has been registered the company can only be
declared null for the reasons established in the law:

- The purpose of the corporation is illegal

- If the compulsory clauses are not fulfilled
- Legal disqualification of all the members
- The lack of consent of at least two founders or the sole member

The main effect upon the declaration of the nullity is liquidation under the rules of the dissolution process

BRANCHES AND SUBSIDIARIES

The company may operate in Spain trough a branch or a subsidiary or a representative office

A branch is a secondary establishment with a permanent representation and certain managing

independence, by means of which the activities of the head office are totally or partially developed, and with
no legal personality independent of that of the head office.

The formation of a branch requires the execution of a public deed that must be registered at the Mercantile
Register. It must have an assigned capital (not min.). It must have a legal representative who is empowered
by the home office to administer the affairs of the branch. No management bodies. It shall have their own
accounting referred to the transactions they make. It shall deposit with the Mercantile Register the head
office’ annual accounts, a certification of their deposit in its Commercial Register. The managing body of the
head office shall appoint a branch Director, he will act as an attorney in fact of the head office in the branch.

7
UNIT 8: CAPITAL AND CONTRIBUTIONS

CONTRIBUTIONS TO THE CAPITAL

TYPES OF CONTRIBUTIONS
Can be in cash or in kind, that are liable to economic appraisal. No other type of contribution can be made to
pay for the capital amount.

• Any shares or stakes that are not backed by a valid contribution to company equity shall be null and
void
• Monetary contributions 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
• Contributions in kind shall consist of patrimonial assets or money´s worth, must be exactly described in
the notarial deed

In the case of SA, the law requires advice from an independent expert, appointed by the Mercantile Register,
to state their value and conditions of payment. The advise must prepare a report that shall be attached to
the notarial deed of constitution of the company. The value attributed to the contribution in the notarial
deed shall not be higher than the value estimated by the experts

In the case of SRL, no independent expert´s report on non-monetary contributions is required, although the
founders and shareholders are jointly and severally liable for the genuineness of the non-monetary
contributions made. In capital increases the directors of the company are liable for the difference between
the value of the non-monetary contributions stated in their report and the real value of the contributions

PAYMENT OF CONTRIBUTIONS
• As for SRL, the stakes into which the capital id divided shall be fully subscribe and their par value fully
paid by the date the moment of the formation of the company
• As for SA, shares shall be fully subscribed but not necessary fully paid up by the formalization of the
company in the notarial deed. The company can at a later moment make a call for the payment of
those shares. That means, shareholders are required to provide more capital, up to the amount
remaining unpaid on the nominal value for their shares.

If a shareholder doesn’t pay the unpaid portion of his share within the deadline period established for
payment he will be in default. The effects are:

• He cannot exercise the right to vote

• He cannot exercise pre-emptive rights to new shares or convertible bonds
• He won’t receive dividends until the payment is done if the dividends have not prescribed

Upon a shareholder´s default the corporation may:

• Claim for payment together with the legal interest and any damages caused by the default
• Sell the shares at the expenses of the shareholder. The sale must be attested by a stock broker or by
a commercial broker or public notary.

8
 • If the shares couldn’t be sold the corporation shall redeem them and reduce the corporate capital,
leaving any sums already paid for benefit of the corporation.

ANCILLIARY OBLIGATIONS

Work or services don’t serve as a contribution to the capital of the corporation. However, the by-laws of
the corporation may make it mandatory for some or all of the shareholders to make ancillary contributions
apart from capital, and which shall not form part of the corporation´s capital.

So, they consist of an obligation to perform certain acts or to refrain from performing certain acts and don’t
form part pf the capital stock of the company. If ancillary obligations are created, the by-laws must state the
content of such obligations, whether or not they are remunerated and the penalties. The existence of these
obligation shall be mentioned in the share certificates, which must be registered

3 TIPYCALL QUESTIONS

• INCREASE OR DECREASE OF CAPITAL tema 12

• Ancillary obligations are not the same that contributions in kind, in the exam he could ask the
differences between them

9
UNIT 9: SHARES AND STAKES

CLASSES AND SERIES OF SHARES AND STAKES

• Ordinary shares: have no express rights conferred above the basic rights implied by the law or the
by-laws. Unless otherwise indicates, all shares are presumed to be ordinary
• Preference shares/stakes: confer the holders extra rights. These extra rights can consist of: the right
to prior payment of a fixed dividend, or the right to be repaid first on the winding up of the company

Preferential shares or stakes won´t be calid in the following cases:

• Remunerated in the form of interest

• If they directly or indirectly alter the ratio between their par value and voting rights or the existing
preferential right to subscribe new shares in capital increases

BASIC RIGHTS

The owning of a share or stake confers the owner the status of a shareholder or partner. They are a bundle
of rights and liabilities. The basic rights are the following ones:

• Right to take part in the distribution of corporate earnings, commonly known as right to a dividend. A
shareholder would only have a right to a dividend if the dividend is declared. Once the dividend is
declared the shareholders are creditors of the company
• After the payment of the debts, to receive a proportionate part of the capital or otherwise to
participate in the distribution of the assets of the company.
• Preferential rights to acquire new stakes or subscribe new shares or convertible bonds in case the
company increases of the amount of issued capital or in casa the company issues bonds or other
securities.
• The attendance and vote in the meeting is one of the basic rights by the means of which shareholders
and partners take part in the decisions of the company. It can be exercised personally or by a
representative. Cannot be abolished. However, in SA it can be limited (e.g: hold a min number of shares
for attending and voting)
• Right to obtain information about the company´s affairs.

MINORITY HOLDERS RIGHT

• Right to request the calling of an extraordinary meeting and the right to request an additional
complement of the notice convening the meeting in order to include one or more matters in the agenda
• The right to challenge any resolution adopted by the Board of Directors
• The right to file an action for liability of directors, if such claim has not been filed by the company itself
and to object to the dismissal of a claim seeking the liability of the directors.
• To request the Mercantile register to appoint an auditor and to request the tribunals to revoke the
appointment of an auditor
• To request the presence of a public notary at the shareholders meeting

10
TRANSFERS OF SHARES

Becoming a member of the company can be inter vivos or mortis causa. In principle, shares are freely
transferable. A share certificate is prima facie evidence of the title. However, supplementary conditions need
to be fulfilled

• In case of registered shares, the transfer shall be recorder in the books of the company
• In case of book entries, the transfer shall be made by accounting transfer and registered in the
account book

The by-laws can establish restrictions on free transferability. The LSC recognize restrictions in the following
cases:

• Preferential rights recognized to shareholders in order to acquire shares from other shareholders
• Especial conditions to be fulfilled by the future shareholders
• Prior approval of the corporation
• Special rules are stated in the case of death of the shareholder or when the acquisition of the shares
is a consequence of a judicial or administrative proceeding. When the company doesn’t accept the
heir as a shareholder it must tender the shareholder a purchaser or must itself offer to purchase
them at the market value.

TRANSFERS OF STAKES

The transfer of stakes shall be recorded in a public document. Transferability of stakes is restricted to
partners or partners close relatives of the partner who wants to transfer his participation in the company.

• Stakes are freely transferable if acquired by other stakeholders, ascendants, descendants or

companies within the same group. Unless otherwise provide in the bylaws, the law establishes a
preferential acquisition right in favour of the other partners or the company itself
• Voluntary transmissions shall be subject to the rules and limitations established in the by laws

Where not regulated in the by-laws, voluntary transfers inter vivos shall be governed as following:

• Partners wishing to transfer their stakes shall notify their intention to the company
• Company shall give its authorisation, granted under a decision of the annual general meeting
• Authorization can only be denied if the company offers a different person to acquire the stakes
under the conditions established by the offeror

Transfers mortis causa: confers partnership status on the inheritor or legatee. 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 deed or any
other legal means of forced transmission as a result of a legal or administrative procedure, the seizure of
stakes must be immediately reported to the company. In case the company doesn’t agree on the person of
the acquirer, it shall present a different person (a partner or a third part)

11
UNIT 10: GOVERNING BODIES, GENERAL MEETING

DIFFERENT TYPES OF MEETINGS

The annual ORDINARY meeting must be held within six months of each financial year with the main purpose
of approving the general accounts and review the corporation’s management.

• Topics to be discussed: ordinary activities of the company. Financial statements shall be approved as
well as proposed distribution of the prior year earnings

EXTRAORDINARY general meeting is a meeting other than the Annual General Meeting. It 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 representing at least 5% of shared

capital
• By a Court if the directors disregard the notification referred to above

Class meetings: these are not general meetings but only for those actions with special rights that discuss
together their specific problems within the general organization of the company

CALLING

The notice shall be published in advance in the official Gazzete and in a major daily newspaper in circulation
in the province, at least 1 month for SA and 15 days for SRL of the date set for the meeting

QUORUM FOR THE CONSTITUTION OF THE MEETING

The quorum is the min number of persons whose presence is required for the transaction of business in any
meeting. The celebration of the meeting in SRL doesn’t requires quorum.

In SA, the first call exists when the shareholders present or represented at the meeting own at least 25% of
the voting capital stock. If a second call has to be made (because there was no quorum at the first call) the
meeting is deemed to be legally convened regardless of the percentage of capital stock present or
represented at the meeting.

Special quorum requirements cannot be lower than the legal requirements. Special quorums are required
for the resolution of certain matters: capital increase or decrease, any transformation, merger or spin-off of
the company. In the 1st call at least 50%, at the second call at least 25%

12
UNIT 11: DIRECTORS

THE POSITION AND STRUCTURE OF DIRECTORS

FACULTIES
Directors of the company are the body in charge of management and representation of the company. They
can be seen as a person whose role is to protect and preserve the assets for the beneficiary, and also, he can
be seen as a dynamic entrepreneur whose job is to take risks with the capital in order to realize the business
which constitutes the purpose of the company. At the same time, directors represent the company and are
able to bind the company with its acts and transactions.

• Separation of ownership and control

• Shareholders and partners exercise the ultimate control over directors trough the general meeting

FORMS OF ADMINISTRATION
• A sole director
• Two or more severally liable directors
• Two joint directors
• A board of directors

BOARD OF DIRECTORS
In SA there is not a maximum of members, but in SRL the board shall not have more than twelve members.

It is a collegiate body: for the adoption of resolutions the members have to act jointly and adopt their
resolutions by majority. None of the members have separate powers.

Each company should establish in the by-laws the way to act of the board

In SRL the by-laws shall establish the organisational arrangements and modus operandi of the board of
directors. In SA unless otherwise specified in the by-laws, the Board can self-regulate its internal processes
and choose one of its members to be the chairman and the Secretary.

The board must hold a meeting fat least once every three months, and it has to be convened in advance by
the chairman. The min quorum in SA is one half plus one of the members attending the meeting. In SRL, the
number of directors specified in the by-laws

For the adoption of decisions, remains silent in the case of SRL, on the contrary, in SA resolutions are
adopted by an absolute majority

The board may delegate its functions to one or more managing directors or to an executive committee. The
obligation to submit annual financial statements, the determination of the general policies and strategies
cannot be delegate.

The discussions and resolutions of the Board shall be kept in a minute book, which shall be signed by the
chairman and secretary.

13
Directors may challenge any void or voidable resolutions of the Board or any other authorized corpoarete
management body, within 30 days

APPOINTMENT

The appointment is decided by the general meeting. It shall also decide the number of directors and may
also fix the guarantees to be provided by the directors. The appointment becomes legally effective when
accepted by the appointee and shall be registered in the Mercantile Register within ten days.

The term in SA cannot exceed six years, whereas in SRL if the period is not stated in the by laws, they can
keep their offices indefinitely.

In addition to the general rule, there are two different cases for the appointment of the members of the
Board in SA:

• Minority shareholders that meet certain thresholds of ownership are entitled to proportional
representation on the Board
• Cooption: where during the term of office for which directors were appointed, a vacancy occurs, the
Board may appoint any shareholder to fill such vacancy until the holding of the next general
meeting.

LIABILITY OF DIRECTORS

GENERAL RULES
Directors are held to a standard of faithful defence of the corporate interests, loyalty and secrecy. Directors
shall be liable for any damage caused to the corporation by the commission of any illegal actions, contrary to
the by laws or done in breach of the duties pertaining to their office.

Directors are liable not only to the company but to its shareholders and creditors

In case there are two or more directors, all of the, are jointly and severally liable. A director can only be
exonerated from liability if he proves:

• He didn’t participate in the adoption or execution of the resolution and that he was unaware of the
existence of the harmful act
• On being aware of it he did everything reasonably possible to mitigate its effect
• Expressly opposed the resolution giving rise to the harm

ENFORCEMENT OF DIRECTOR´S LIABILITY

The action is directed to repair the harm or damaged caused to the company. The company may settle or
dismiss such proceeding but no matter which the resolution sense Directors shall be removed. Even the
approval of the financial statements shall not bar an action for liability

14
• The action is to be filed by the company upon resolution of the general meeting. The resolution can
be adopted even though it is not included in the agenda. The resolution shall be adopted following
the majority rule.
• Shareholders representing 5% of corporate capital may file the action seeking the liability of
directors when:
o The shareholder’s meeting is not called by the directors
o The company fails to file such suit within one month from the time the resolution
o Resolution adopted was against seeking such liability
• A derivative action is brought in respect of wrongs against the company when creditors sue in place
of the company. Creditors may bring derivative suits when the company or its shareholders fail to do
so and the company´s net worth is not enough to satisfy their credits

15
UNIT 12: FINAL ACCOUNTS, AMENDEMENT OF BY LAWS

CAPITAL INCREASE

It can be done by two different methods:

• The issue of new shares in SA or stakes in SRL

• The increase of the nominal value of the shares or stakes

Consideration for capital increase may consist of:

• Both monetary and non-monetary contributions to capital

• By the setting of credits owned by the company
• Reserves or profits can also be used to increase
• Power vested in directors

In SA the general meeting may adopt decisions delegate to directors the power of increasing the capital
within the limits o f time and amount established by the meeting and the law.

Increases with monetary contribution requires that the previous shares of participation units are fully paid
in (in SRL since the formation of the company)

Increases with non-monetary contributions need a report to be prepared by the directors (detail the nature
and characteristics and par value of shares/stakes given in exchange)

Increases trough the ser-offs of credits require that at least 25% of the credits to be set-off are due and
payable, and the dates of maturity for the rest doesn’t exceed 5 years.

Increase charged to reserves: only unrestricted resrves,paid-in surpluses and the portion of the legal
reserve exceeding 10% of the increased capital can be used. …

By issuing new shares or stakes, the holders of existing shares or units have a pre-emptive rights for the
subscription of a number of new ones in proportion to those they hold. The pre-emptive rights are
transferable under the same conditions (doesn’t matter if share or stake) these rights may be excluded.
These tights may be excluded where the interests of the company so demand

After the decision to increase capital is implemented, the directors must redraft the by-laws to reflect the
new sum, lay it on a public document and register in the Mercantile Register. Both the decision adopted by
the meeting and the implementation shall be entered simultaneously in the Mercantile Register

CAPITAL REDUCTION

Formal amendment of bylaws and the general requirements for reduction must be in accordance of the
requirements applicable to amendments of bylaws.

There can be many reasons to justify the reduction of the capital, from the excess of patrimonial assets to
big losses. All of them imply negative effects for creditors and third parties. In 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

16
 • Big losses: creditors have already suffered a loss

Capital reduction can be compulsory or voluntary, in any case, once approved by the meeting and prior to
its implementation, the decision to reduce capital in SA shall be publishes in the Official Journal of
Mercantile Register. All different types are regulated in LSC.

TYPES OF REDUCTION
Purpose of the reduction may be:

• The return of contributions

• The write-off of unpaid contributions
• Creation or increase of the legal reserve
• The reestablishment of the equilibrium between the corporation´s capital and the net equity
reduced by losses. The reduction 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

Formally, it can be realized by the lowering of the par value of the shares, by their redemption, or by
grouping and exchanging them.

REDUCTION IN CASE OF LOSSES AND PROVISION OF LEGAL RESERVE , MAIN IDEAS:

• Principle of equal treatment: all members shall be affected in equal proportion to their par value
• Under no circumstances may the reduction entail refunds to partners or shareholders
• Capital reduction cannot be done in case of existing reserves
• Capital reduction shall be based in a balance sheet formulated and audited no more than six months
prior to its approval

REDUCTION TO RETURN CONTRIBUTIONS, MAIN IDEAS:

• Individual consent of holders of stakes (or majority of shareholders affected in SA) is a condition for
the valid agreement of reduction
• Contributions must be refunded in proportion to the amount paid for the stakes or shares, unless
other arrangements are unanimously approved

CREDITOR´S PROTECTION
• In SRL, partners whose contributions have been refunded shall be jointly and severally liable for the
payment of the company debts prior to the date on which the reduction was effective.
• In SA, following the publication of the resolution to reduce capital, and within one month period,
creditors of the company are entitled to oppose the reduction until they receive guarantee enough
for any credits that are due and payable on the date of such resolution
• Creditors may not oppose the reduction in the cases established in the by laws

17
UNIT 13: EXIT AND EXCLUSION. DISSOLUTION OF THE COMPANY, STRUCTURAL CHANGES

DISOLUTION OF THE 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 begins with the existence of a reason for bringing the company to an end. Once adopeted the
resolution for the dissolution, the company enters into liquidation. When liquidation is finished all the record
of the company in the Mercantile Register must be cancelled.

GROUNDS ON DISSOLUTION
The different reasons for the dissolution need to be admitted in the shareholders meeting which shall adopt
the resolution to dissolve the company. It is not necessary the decision of the company in case of:

• Existence of an expiry term

• Lapse
• The initiation of the liquidation phase in insolvency proceedings

The decision of the meeting will be necessary when:

• Upon interruption of the activity that constitute its corporate purpose, in particular, inactivity for
over one year shall be deemed to constitute interruption
• Upon termination of the mission that constitutes its corporate purpose
• Where achievement of the corporate purpose is manifestly impossible
• Due to governing body standstill
• Due to losses that reduce equity to an amount lower than ½ of the share capital
• Due to a capital reduction to a sum below legal minimum
• Par value of non-voting stakes or shares exceeds one half of the paid-up capital and the due
proportion is not recovered within two years
• For any other cause established in the by laws

Dissolution decision shall be adopted by the general meeting. Directors are obliged to call for the meeting
upon the existence of a reason for dissolution. The dissolution of the company should be registered with the
Mercantile Register Office. Legal personality of the company shall continue, for the purposes of the
liquidation, until the company is closed

After the dissolution the authority of directors come to an end and the liquidators shall assume the
representation of the company and to enter into contracts to wind up the firm´s affaires and complete
transactions that have begun but are unfinished.

LIQUIDATION
?

18
PREGUNTAS DEL PARCIAL DE AÑOS ANTERIORES:

Explain to Maria which are the requirements needed to become a sole trader.

• Legal capacity: majority of age. Minors cannot begin a business, only continue if they inherit
• Develop an economic-business activity. Organized activity
• Habitually: in a continuous way
• In your own name: directors act in the economic activity but are not traders because they act in the
name of the trader

3.- Which are the requirements needed for the valid limitation of the authority given to a factor by his
principal?

The factor or general director is the representative of the trader and his faculties are to direct and manage
the business as if he were the trader. The faculties of the factor can be limited but not the point to make him
an assistant that have only the powers to act in one part of the business. The limits need to be recorded in
the Mercantile Register to be valid towards third parties.

5.- Art. 32.1 of the Commercial Code estates that “the accounts of traders are secret”. However, can the
trader be compelled to show his books? If so, explains when and how.

General inspections in cases of insolvency, liquidation, when the employees have the right to exam the
books. Particular inspections in the cases where there is a conflict. The trader is only obliged to show the
part of the books related to the case. The exam of the books shall be done in the site of the trader, with the
trader, and with guaranties enough to preserve the integrity of the books

4. - Explain the meaning of the following sentence in art. 20.1 in the Spanish Code of Commerce: “The
content of the Registry is assumed to be exact and valid”.

The books only declare the existence does not legitimate the facts nor make valid something that is invalid.
However, this presumption can be destroyed when the tribunals declare the act invalid or null. This is the
legitimation principle

5.- Which are the effects of the registration of an act in the Commercial Register?

Legitimation and declaratory value. They have effect on third parties after the registration and 15 days after
the publication in the BORM. From that moment, third parties cannot argue that they didn t́ know what is
recorded. The act is presumed to be valid and exact. This presumption can only be destroyed by the
tribunals

8. Characteristics of limited partnerships (Sociedad Comanditaria)

A limited partnership (S. Com.) 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 participation units
or shares. Name: formed by the name of general partners followed by the expression “Sociedad
comanditaria” Rules for general partners are the same that the rules for general partners in sociedades
colectivas The rules for limited partners: they cannot include their name in the name of the company, they
are only liable to the amount of capital the contribute to the capital, they cannot be managers or directors

19
nor represent the company, they have the right to be informed once a year, they have not access to the
books.

8.- Characteristics of general partnerships (Sociedad Colectiva).

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. The
name: name of one or more partners followed by the words “y compañía” or “Sociedad colectiva” Partners
can contribute with capital or work: those who contribute with work are industrial partners All partners can
be managers Benefits and losses in proportion to their contribution to the company No competition with the
partnership Right to direct information

10. What is an “irregular company”? Which is the appropriate regulation?

The irregular company is a company that have not completed the process for the creation of the company:
the partners have no intention to formalize the agreement in a public document or have not registered the
company in the mercantile register. And after one year, if the company develops an economic activity in the
market and show no interest in completing the formation process, they are companies but cannot be
considered an SA, SL, limited partnership (Sociedad comanditaria). The appropriate regulation to rule this
type of de facto company is the regulation for general partnerships (sociedades colectivas) arts. 125 y ss
Codigo de Comercio.

Lola, Carmen and Pilar decided, in the early days of the confinement because of the Covid-19 Pandemia, to
open a take-away store. They have been so successful that they want to continue with the business and
create a company. They ask you which are the requirements for the creation of an SL

- capital minimum 1€, divided in stakes or participations units. Fully subscribed and fully paid at
the moment of the creation of the company.
- contributions of partners shall be economic valuable: capital, not work
- partners are not liable for the debts of the company
- the name: any followed by the expression: SL, SRL, Sociedad de responsabilidad limitada
- notarial deed: the consent of partners to create an SL, contributions of partners, bylaws
- and registration in Mercantile Register

9.-A few months ago, in the early days of the confinement because of the Covid-19 Pandemia, Antonio,
Andres and Alfonso decided to open a take-away store. They have been so successful that they want to
continue with the business and create a company. They ask you which are the requirements for the
creation of an SA.

- capital minimum 60.000€, divided in shares. Fully subscribed and paid 25%, at least, at the
moment of the creation of the company.
- contributions of shareholders shall be economic valuable: capital, not work
- shareholders are not liable for the debts of the company
- the name: any, followed by the expression: SA, Sociedad Anonima
- notarial deed: the consent of shareholders to create an SA, contributions of shareholders,
bylaws,
- and registration in Mercantile Register

20
which are the effects of the registration in the Commercial Register of the acts of a trade:

- legitimation
- declaratory value
- authority to attest documents
- effects

Formalities of incorporation of an SA:

a) Notarial deed, including the name of the founders, the contribution of each of them and the bylaws

b) registration in the Mercantile Register. Otherwise an SA wont exist.

6.- Mr. Gibson, wants to know which are the main differences between shares and certification units (or
stakes).

Participation units in SRL may not be represented by certificates or book entries, nor be called shares,in SA
and under no circumstances shall be regarded to be securities (art.92.2). Shares are represented by
certificates or book entries and are securities that can be acquired in the stock markets.

Participation units are generally not freely transferable unless acquired by other participation unit holders,
ascendants, descendants or companies within the same group. In fact, unless otherwise provided in the
bylaws, the Law establishes a preferential acquisition right in favour of the other partners or the company
itself in the event of transfer of the participation units to persons other than different than those mentioned
(art. 104, 106 to 110). Shares are freely transferable unless the bylaws establish limits to the transferability

21