Volume 5, Number 26, Page 4

Recent Revisions in the Spanish Law of Corporations

by Pilar Perales Viscasillas

Editor’s note: Spain has often served as both a model for and precursor to legal and political change in Latin America, particularly in light of its successful transition from dictatorship to democracy and integration into the European Common Market. For that reason, we include the following article, which details revisions in the Spanish Law of Corporations.

On November 16, 1998, the Spanish legislature (Las Cortes Generales) fundamentally revised the Law of Corporations (Ley de Sociedades Anonimas (LSA), aprobado por Real Decreto legislativo 1564/1989, de 22 de marzo) in several areas. As stated in the preamble of the Law, the purpose of this revision is to facilitate better corporate financing by regulation of the securities market. Toward this end, several new institutions have also been introduced. The Law is currently being scrutinized by the public sector as well, particularly publicly traded corporations who will be most affected by the changes. Final Disposition No. 3 states that the Executive shall have a deadline of six months to send to the Congress a revision of the entire chapter of the LSA related to debt securities.

Revisions in the Law of Corporations

Preferred Shares (acciones preferentes)

Although article 50 of the LSA establishes the option for corporations to issue preferential shares, it does not include anything concerning preferential shares that would give the shareholder the right to receive dividends from the corporation. The recent revision does introduce the corporation’s obligation to distribute dividends, if any, to those shareholders that have stock with a preferential right on dividends (Article 50.3).

Shares Without Voting Rights (acciones sin voto)

The Spanish Law of Corporations considers shares with no voting rights as preferred shares, in that they give entitled shareholders a preferential right to distribution of dividends over that of common stock holders. The new law allows the corporation to fix (in its bylaws) the percentage of dividends to which such shareholders are entitled, always within the limits established in the previous version of Article 91 of the LSA; i.e., a minimum annual distribution of 5%. The revised version of Article 91 LSA deletes this limit but also clarifies that shareholders without voting rights have the right to receive a fixed or variable minimum annual distribution, according to the corporation’s bylaws.

Of great importance is the suppresion of the right of shareholders without voting rights to recover such voting rights when a publicly traded corporation fails to satisfy the mandatory minimum distribution.

Preemptive Right (derecho de suscripcion preferente)

Some revisions in preemptive rights are worthy of mention. First, the time allowed to exercise the shareholder’s preemptive right is 15 days instead of one month (Article 159.1 LSA). Second, there has been an exclusion of the preemptive right in certain circumstances relative to publicly traded corporations (Article 159.2 LSA). Finally, it has been established that in the case wherein a coporation has issued corporate debt securities holders of securities with rights to conversion at a fixed rate are excluded from purchasing, an adjustment must be made to compensate their eventual loss in the conversion of shares.

The Introduction of a New Institution in the Law of Corporations

The Spanish legislature has decided to introduce a new kind of stock for publicly traded corporations. Defined as redeemable shares (acciones rescatables), their main purpose is to answer the need of publicly traded corporations to issue a type of stock that provides efficient financing to the corporation.

New Article 92 bis(1) LSA allows the corporation to issue redeemable shares at the corporation’s option or that of the shareholder in an amount not exceeding 25 percent of the corporation’s paid-for capital. The terms and conditions of the issuance of such shares shall be established set forth in document form (acuerdo de emision).

As an exception to the general rule allowing corporations to operate with only 25 percent of the value paid for each share (art.12 LSA), Article 92 bis (2) LSA requires a full payment of the value of the redeemable shares.

The third section of Article 92 establishes regulations related to the payment of redeemable shares when the right of redemption is exercised. The corporation may redeem such shares out of earnings, surplus or the capital raised by the new issuance of shares. The decision to redeem shall be made by a majority of the shareholders with the objective of financing the redemption of shares. If neither earnings nor surplus is available, the redemption may only take place once the requirements for the reduction of capital are met.

Pilar Perales Viscasillas is a Professor of Law at the Carlos III University in Madrid.