When a company is dissolved, it doesn’t immediately cease to exist. It enters a liquidation phase, during which outstanding debts are settled, necessary assets are sold, and the remaining balance is distributed among shareholders. This process, governed by the Spanish Companies Act (Ley de Sociedades de Capital – LSC), ensures an orderly and fair closure of the business.
What Is an In-kind Liquidation Share?
Article 391 of the Spanish Companies Act states that, once corporate obligations are extinguished, shareholders are entitled to a liquidation share reflecting their participation in the residual assets.
This share is normally paid in cash, following the sale of company assets. However, the same article allows, under certain conditions, for the distribution of specific assets instead of money — a mechanism known as in-kind liquidation share or liquidation in kind.
What Does It Mean to Liquidate a Company In Kind?
An in-kind liquidation consists of allocating specific assets from the company’s estate (for instance, real estate, vehicles, or financial holdings) directly to shareholders rather than distributing cash proceeds.
This form of liquidation can be useful when:
- The company holds assets that are difficult to sell,
- There is a desire to avoid unnecessary fiscal or notarial costs, or
- Shareholders seek to retain strategic assets of particular value.
In such cases, distributing assets directly can be a more equitable and efficient alternative to a purely monetary liquidation.
Legal Basis and Validity Requirements
Spanish case law and legal doctrine recognise the validity of in-kind distributions, provided certain fundamental principles are respected—especially equal treatment among shareholders and fair valuation of the assets assigned.
To ensure legal validity, the following conditions are necessary:
Statutory Authorisation or Unanimous Consent
Unless expressly prohibited by the company’s bylaws, the liquidators may propose an in-kind distribution. In practice, however, unanimous shareholder consent is generally required, unless the bylaws provide otherwise.
Proper Asset Valuation
Each asset’s real market value must be determined at the liquidation date to guarantee proportionality among shareholders’ shares. This valuation should be objective and ideally conducted by an independent expert.
Formal Execution by Notarial Deed
When real estate or other registrable assets are involved, the distribution agreement must be formalised in a public deed and registered with the corresponding public registry.
Advantages of In-kind Liquidation
An in-kind liquidation offers several economic and tax advantages:
- It avoids sales costs and indirect taxation, such as VAT or Transfer Tax (in certain cases).
- It allows shareholders to preserve valuable or strategic assets, such as real estate or industrial equipment.
- It can accelerate the dissolution process bypassing delays linked to finding buyers.
Moreover, when shareholders wish to retain specific assets under their direct control, in-kind liquidation can be the most practical and efficient solution.
Risks and Precautions
Despite its benefits, in-kind liquidation involves certain legal and financial risks.
The most common disputes arise from disagreements or imbalances in asset valuation among shareholders, mainly when one shareholder receives illiquid or difficult-to-sell assets.
To minimise risks, it is advisable to:
- Obtain an independent valuation of the assets to distribute
- Formalise the arrangement in a comprehensible and written agreement
- Seek specialised legal and tax advice throughout the process.
Conclusion
The in-kind liquidation share is a flexible and balanced tool for efficiently winding up a company, avoiding rushed sales and unnecessary costs — particularly when the company holds unique or illiquid assets.
However, it requires careful legal and tax planning to ensure compliance and fairness among shareholders.
Frequently Asked Questions
Upon company dissolution, shareholders have the right to receive specific assets from the company’s estate rather than cash. Article 391 of the Spanish Companies Act provides for this mechanism.
It applies when, after dissolution, assets can be directly allocated to shareholders. It is convenient when those assets are hard to sell or would lose value in a rushed sale.
There must be a shareholder agreement (typically unanimous), an objective asset valuation, and notarial execution when real estate or registrable assets are included.
It reduces transaction and tax costs, allows the retention of strategic assets, and streamlines the liquidation process.
Disputes among shareholders over asset valuation or disproportionate allocation. For this reason, independent valuation and expert legal guidance are essential.
Are you considering dissolving your company or planning an in-kind distribution of assets?
