On June 23, the Spanish Legal Bulletin (BOE) published Law 1/2012, of June 22, on the simplification of reporting and documentation obligations of mergers and divisions of companies, which incorporates modifications that affect the Capital Companies Act. Among these changes, we emphasize the right of a shareholder to separate when a company decides not to distribute benefits.
Rules applicable as of October 2, 2011.
The Law 25/2011, of August 1, on the partial reform of the Capital Companies Act, effective as of October 2, 2011, introduced an important innovation: the new right of separation for failure to report dividends owed to the shareholders of unlisted corporations and limited liability corporations to protect the minority.
The purpose of this Law is to prevent the right to social gains of the shareholder from being directly harmed if, year after year, the general meeting agrees not to distribute benefits even when they exist.
Distribution of Dividends
The right of separation exists as of the fifth year of the company’s registration in the Commercial Registry. The shareholder who votes in favour of the distribution of the benefits has this right. This situation applies when the general meeting has not agreed to the distribution as a dividend of at least 1/3 of the benefits of the exploitation of the company objective (for example, regarding the benefits obtained through the normal activities of the company. This avoids having to distribute dividends as extraordinary guarantees such as capital gains obtained through the disposal of property forming part of fixed assets, which are obtained during the previous year and are legally distributable).
Therefore, if the Company formed, for example, three years ago, the shareholders would still not have this right.
Time
The time to exercise the right of separation is one month from the date of the conclusion of the corresponding ordinary general board meeting.
This new individual right of a shareholder to separate due to failure to distribute benefits supposes that if the conditions for its exercise exist, the shareholder can leave the company and recover the value of his or her investment according to the procedure outlined in the Law (in particular, the shareholder’s participation in the shared capital would be fair value).
Bylaws
Given the imperative nature in which the Law regulates this right, we must remember the drafting of bylaws. Specifically, it is important to keep in mind whether the bylaws regulate the distribution of benefits in forms contrary to the established Law. It is a right that the minority shareholders may waive or choose not to exercise when the conditions outlined in the legislation exist. However, in no case, given the essential character of the right to benefits, can this right be waived in the bylaws of the company.
The new regime: Suspension of the right as of June 24, 2012
The Law 1/2012, effective as of June 24, 2012, supposes a new transitional provision in the Capital Companies Act, for which it suspends until December 31, 2014, the application of the shareholder’s right of separation in the case that the company does not distribute benefits.
The legalisation does not clarify the consequences to corporations that have concluded their ordinary general board meeting when the Law entered into force with the new right to separation, effective on October 2, 2011, and the entering into force of the Law 1/2012 on June 24, 2012.
It is necessary to wait for the declarations of the Courts of Justice and the Resolutions of the General Directorate of Registers and Notaries.
For additional information regarding the rights of shareholders in Spain,
