Selling shares (participaciones) in a limited liability company requires you to review three matters before closing the deal: the articles of association, the form of the transfer document and the register of shareholders (libro registro de socios).
The company must keep a register of shareholders and, in principle, will regard as a shareholder whoever is entered in it. However, the acquirer may exercise shareholder rights from the moment the company has proven knowledge of the transfer. For that reason, it is advisable to give notice of the transfer by a means that provides reliable proof and to request that the register be updated immediately.
Before the price, the articles of association
The law subjects the voluntary transfer of shares in an SL (Spanish private limited company, sociedad limitada) to a restrictive regime.
Unless the articles of association provide otherwise, an inter vivos transfer is free when it is made:
- Between shareholders.
- In favour of the shareholder’s spouse, ascendants or descendants.
- In favour of companies in the same group as the transferor.
The list does not include, for example, siblings, unmarried partners (parejas de hecho) or other collateral relatives. The articles of association may also impose restrictions in the cases that the law initially treats as free.
For a sale to a third party, the first step is to review the articles of association. If they contain no specific rules, the default procedure in Article 107.2 of the Spanish Companies Act (Ley de Sociedades de Capital, LSC) applies.
The legal procedure if the articles of association do not regulate the sale
The shareholder who intends to sell must notify the directors in writing, stating:
- The shares to be transferred.
- The identity of the buyer.
- The price.
- The method of payment.
- The other terms of the transaction.
The transfer is then subject to the company’s consent, which must be given by resolution of the general meeting.
The company may only refuse consent if it identifies one or more shareholders or third parties who will acquire all of the shares offered. The notice to the transferor must be given through a notary, unless the transferor attended the meeting that adopted the resolution.
The shareholders who attended that meeting have a preferential right to acquire the shares. If no acquirer is identified for all of them, the company may acquire them in compliance with the rules applicable to treasury shares.
The price and terms must be those initially notified by the seller. If payment is deferred, a credit institution must guarantee the deferred amount before the third party can acquire the shares.
Once the acquirer has been identified, the public document must be executed within one month. If three months pass from the notice without the company identifying an acquirer, the shareholder may sell on the terms notified.
If the buyer, the price or an essential term changes, it is advisable to give a new notice. The company’s silence does not authorise a transaction different from the one notified to it.
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Limits on the articles of association
The articles of association may establish restrictions, but not just any restriction.
Clauses that make the voluntary inter vivos transfer practically free are void, as are those that oblige the shareholder offering shares to sell a number different from the one offered.
The articles of association may prohibit voluntary transfer, but only if they grant the shareholder a right of withdrawal at any time. They may also prevent the transfer, or the exercise of the right of withdrawal, for a maximum period of five years from the incorporation of the company or, for shares arising from a capital increase, from the execution of the deed recording that increase.
Common mistakes
The most common mistakes are:
- Not reviewing the articles of association before negotiating or closing the sale.
- Not notifying the directors in writing of a specific transaction.
- Ignoring the pre-emption rights or the consents provided for in the articles of association.
- Not recording the transfer in a public document.
- Agreeing a deferred price without the bank guarantee required by the default regime.
- Not executing the public document within one month when the company has identified an acquirer.
- Changing essential terms after the three months have passed without giving a new notice.
- Not checking the previous chain of transfers and the register of shareholders.
If the seller is a company: the essential asset
When the seller is a company, the transfer of shares may require a resolution of its own general meeting if it amounts to the disposal of an essential asset.
Article 160.f) LSC presumes that an asset is essential when the amount of the transaction exceeds 25% of the value of the assets shown in the last approved balance sheet. It is not an automatic threshold, as an asset may be essential even if it does not reach that percentage.
Where there is doubt, it is prudent to obtain a general meeting resolution or to record expressly that the asset is not essential.
Frequently asked questions
Can I sell my shares to a third party if the other shareholders object?
If the articles of association do not establish a different regime, the company can only refuse consent if it notifies the identity of a person who will acquire all of the shares offered. If, after three months, it has not notified any acquirer, the shareholder may sell on the terms notified.
Do I have to go to a notary to sell shares in an SL?
The transfer of shares must be recorded in a public document and is normally formalised in a notarial deed. Failing to formalise it does not necessarily mean that the contract between the parties does not exist, but it may undermine its proof and its enforceability against the company and third parties, and it may prevent the acquirer from being effectively recognised as a shareholder.
Can I sell only part of my shares?
Yes. The articles of association cannot oblige you to transfer a number of shares different from the one you offered.
Is the sale registered with the Commercial Registry?
No. Ownership of the shares is reflected in the register of shareholders, which is kept by the management body. The single-member company is a significant exception, since its status as such and certain changes must be registered with the Commercial Registry (Registro Mercantil).
What happens if a shareholder dies?
The heir or legatee becomes a shareholder. However, the articles of association may grant the surviving shareholders and, failing them, the company a right to acquire the deceased’s shares. The price must be paid in cash and is determined in accordance with the statutory valuation rules.
At Supra Legit Lawyers we review the chain of title and the procedure set out in the articles of association before a formal defect brings down the deal. Tell us about your case.
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Legislation cited: Spanish Companies Act (Ley de Sociedades de Capital) (Arts. 104, 105, 106, 107, 108, 110, 111, 112, 120 and 160.f).
