Articles 360-370 of the Spanish Companies Act regulate the dissolution of limited liability companies (L.L.C.).
Dissolution of an L.L.C. due to economic difficulties
Dissolution for accumulation of losses
This occurs when a company’s recorded losses reduces its net assets to less than half of its share capital. In such a case, dissolution is not automatic. It must be approved during the General Meeting of Shareholders.
Please note that an accumulation of losses leading to dissolution can be prevented through four mechanisms:
- Increase of the amount of capital necessary to restore the balance between the net assets and share capital.
- Reduction of the share capital to absorb the losses
- Reduction and simultaneous increase of capital
- Contributions from partners to offset losses.
Reduction of capital to below the minimum legal threshold
Article 363.1 f) of the Companies Act provides for the compulsory dissolution of a limited liability company whose capital is reduced to below the minimum legal threshold of € 3,000.
Such capital reduction may be due to:
- The removal or exclusion of one or more shareholders for reasons established by law
- The acquisition of shares by the company for depreciation purposes
Similar to dissolution due to the accumulation of losses, dissolution due to the reduction of share capital below the minimum legal threshold can be avoided by increasing the share capital of the L.L.C., or transforming it into another company form.
Dissolution of an L.L.C. because of the behaviour of its partners
Dissolution of an L.L.C. as a result of an agreement between its shareholders: shareholders’ meeting decision
The exercise of the principle of party autonomy enables the partners to dissolve a company for no apparent reason, through the favourable vote of more than half of the shares held by the shareholders at a general meeting (the dissolution must be on the agenda convening the GM). The dissolution, once passed, should be evidences in an authentic instrument and an entry in the Trade Register.
Dissolution of an L.L.C. due to a disagreement between its partners paralyzing the company’s operation
A disagreement between the partners can sometimes lead to a total paralysis of the functioning of the company.
For paralysis to result in the dissolution of the company, it must be continuous and must substantially hinder significant decision-making. The dissolution will be mandatory if in house council fails to reach agreement.
However, an end to the causes of this paralysis may prevent dissolution.
Clément-Henri Girardot & Nicolás Melchior
This article is not considered as legal advice