Note to the Partial Reform of the Law of Capital Companies in Spain

On 2 October 2011, Law 25/2011 of August 1 came into force. This law provides for the partial reform of the Capital Companies Act and the transposition of Directive 2007/36/EC of the European Parliament and Council on the exercise of certain rights of shareholders in listed companies. The act was published in the Official Gazette on 2 August 2011.

The innovations introduced by this Act may be summarized in four points: the reduction of operation costs and organization of capital companies (along the lines initiated by Royal Decree-Law 13/2010 of December 3, in fiscal, labour and liberalization activities to promote investment and job creation), the introduction of modernization standards in company law, the abolition of the differences between public liability and limited liability companies and, finally, the transposition into domestic law of the European Directive mentioned above.

The following is an examination of each of these points:

The Reduction of Operating Costs and Organization of Capital Companies

This modification involves firstly, the elimination of advertising requirements, official or private, about the following matters:

• The convening of General Meetings of Shareholders: the Memorandum and Articles may provide that notification will only be made by the publication of a notice in the website of the company or by any written means communicated individually to all members (Article 173.2 LSC)
• The agreements to amend Memorandums and Articles of Association of Corporations: Article 289 of the Capital Companies Act, which requires the advertisement of any modification agreement of the constitutional documents of the company on the web or in newspapers before entry in the Companies Registry is deleted
• In the dissolution of the corporation: the dissolution is no longer required to be published in one of the large Daily Newspapers in the area of the company´s registered office if the company has no website (section 369 LSC). Dissolution can now be entered directly into the Commercial Registry
• During the liquidation period: it removes the obligation of publication of company accounts in the Official Gazette of the Mercantile Registry (BORME). It will be sufficient that the liquidators present the accounts at a General Meeting (Article 388.2 LSC)

Secondly, the Memorandum and Articles of Association of a company may establish different modes of organization and it will be the Board that chooses the mode it deems appropriate, without having to amend the constitution of the company (Article 23e) LSC).

Introduction of Modernization Standards in Company Law

On this point, it is worth noting one of the rules of the Board of Directors.

Administrators representing at least one-third of the elements of the company have the right to call a meeting of the Board of Directors, following the failure without cause of the President of the Board to call a board meeting within a month of being requested to do so. (Article 246.2 LSC).

The Elimination of Differences in the Treatment of Public Liability and Limited Liability Companies

The elimination of differences can be seen principally:

• In the calling of General Meetings (section 173 LSC) unifying the rules for both types of companies
• The possibility of introducing into the Memorandum and Articles of Association causes for exclusion of shareholders to all companies (Section 351 LSC). This was previously only possible in limited liability companies
• The appearance of inactivity as a cause of dissolution for any company (section 363.1a, LSC), an issue that before the reform was only possible for limited liability companies
• The generalization of the default rule that directors of the company are automatically converted into liquidators on the dissolution of the company (Article 376.1, LSC) which also was previously only for limited liability companies
• Concerning the responsibility of the liquidators (section 397 LSC), establishing for both types of company that the liquidators will be accountable to the members and creditors for any damage caused willfully or negligently, removing the requirement of fraud or gross negligence about public companies.

The Transposition of Directive 2007/36/EC into National Law

The Directive aims to facilitate and promote the exercise of rights to information and voting rights of shareholders of listed companies in the European Union.

A new Section 2 is added to Chapter VI on the functioning of the General Meeting. Subsection 1 (Articles 514 521 LSC) contains general provisions in this regard. Subsection 2 (Articles 522 to 524 LSC) refers to participation in the General Meeting through a representative and Subsection 3 (Articles 525 to 526 LSC) refers to voting on resolutions. The purpose of the inclusion of these new provisions is to eliminate barriers for shareholders about voting and electronic participation in meetings.

In summary, this law brings Spanish legislation in line with the legislation of the European Union and tends to favour the development of enterprise, partly relaxing this regime and providing for more flexible operation and organization. To facilitate this development provisions imposing differences of regime that existed between public and limited liability companies have been removed which is an adjustment, clarification and harmonization of the system.

Finally, of note is that great importance has been attached to the use of electronic media: particularly the fact that the website of a company is considered as a tool of communication of basic legal information for company law and is a further guarantee of the rights of shareholders.

For additional information regarding the Law of Capital Companies in Spain,