It is the notarial document by means of which the partners of a commercial company can reduce their contribution in the same one reducing consequently the capital of the company.
This is a merely informative and non-binding estimate. This estimate is calculated based on two criteria: 1) our knowledge of the Notarial Tariff and 2) our daily experience in the preparation of this type of notarial document. (Royal Decree 1426/1989, November 17, 1989). and 2) our daily experience in the preparation of this type of notarial document. However, any variation (upward or downward) will be duly justified at the time of issuing the final invoice for the notarial service rendered.
In the same way that has been explained when analyzing the deed of incorporation of capital companies or their capital increase, these are legal instruments that our legal system has designed to promote and facilitate economic and commercial activities that create wealth and employment for the community and society, All this by means of the celebration of a contract by which two or more persons are obliged to put money, goods or industry in common, with the intention of dividing the profits between them, thus creating entities with their own legal personality and with assets separate from those of their partners with which to finance their social activity and with which they can respond to the debts and social liabilities that they contract.
Capital companies, as indicated above, require capital, contributed by their partners, with which to cover and finance the assets necessary for the development of the productive or commercial activity that they offer to the market. As a result of this reality, it seems obvious then that the capital needs of commercial companies may vary throughout their life cycle and, in this specific case, they may be forced to reduce it when certain circumstances arise, for example when the company has incurred losses, or simply when the partners of the company wish to recover part of the investment made, when for example the activity of the company does not require such high levels of capital for the development of its business (cases of overcapitalization of commercial companies).
Thus, through a reduction of capital stock, a capital company will see a reduction in the equity with which it can normally finance and develop its productive or commercial activity in the market.
By way of introduction, from the aforementioned regulations, and in particular Article 317 of the Capital Companies Law, the reader should be aware that there are four main types of capital stock reduction, namely:
Throughout this entry, we will try to explain the main legal characteristics and requirements of these different figures, so that anyone interested in undertaking any of these operations will have a clear idea of the steps to follow and requirements to observe in order to achieve the desired result.
The different ways of reducing the capital stock of capital companies are essentially the reverse of the options that exist for increasing it, since in accordance with Article 317.2 of the Capital Companies Law, a commercial company may reduce its capital:
Thus, and by way of example, so that the reader can more easily understand the nature of this operation:
<ejemplo>Una compañía que disponga de un capital social de 10.000 €, dividido en 1.000 participaciones sociales de 10 € de valor nominal cada una de ellas, si desea reducir su capital social en un 50%, podrá acordar:<ejemplo>
In accordance with Article 318 of the Capital Companies Act, the reduction of the share capital must be agreed by the general meeting with the requirements of the amendment of the bylaws (i.e., by the owners of the company), which makes it necessary here to resort to the provisions of Article 288 of the Capital Companies Act, which requires:
In any case, as required by Article 318 of the aforementioned law, the resolution of the shareholders' meeting to reduce capital shall state, at least, the amount of the capital reduction, the purpose of the reduction, the procedure by which the company is to carry it out, the term of execution and the amount to be paid, if any, to the shareholders.
Finally, once the resolution has been adopted, in the case of corporations, it must be published in the Official Gazette of the Mercantile Registry and on the company's website or, if there is none, in a newspaper of wide circulation in the province in which the company has its registered office (Article 319 of the Capital Companies Act).
Pursuant to Article 320 of the Capital Companies Law, the purpose of this type of capital reduction is to restore the balance between the capital and the net worth of the company that has been reduced as a result of losses.
As is logical, capital companies are subject to market cycles as well as to the successes or failures of their management, which can be negatively reflected in their annual results, showing negative results or losses. When this happens, if these losses reach high magnitudes, they can endanger the financial stability of the company and its equity balance, making it necessary to resort to mechanisms to reestablish it, such as this reduction of capital stock due to losses.
At this point, it is also necessary to bring up two complementary precepts of fundamental importance, which will help to better understand, if possible, this figure:
By way of example, and so that the reader can better understand this situation, the following is an example of the equity situation of a company that would require a capital reduction on the basis of the foregoing:
Thus, in the example shown, the reader can observe a situation in which a company, as a result of a very large negative result for the year, has seen its net worth reduced to less than half the amount of its capital stock, thus incurring in the aforementioned cause for dissolution. In order to avoid this situation, a reduction of the share capital would be necessary, so that the net worth of this company would be as follows:
Having understood the nature and objectives of the reduction of capital stock due to losses, it is now time to continue with the analysis of the legal norms that regulate its execution.
In this sense, the legislator has conceived this type of capital reduction under the principle of parity of treatment (Article 320 of the Capital Companies Act), by virtue of which this capital reduction must affect all the shares or all the shares equally in proportion to their par value, but respecting the privileges that may have been granted by law or in the bylaws for certain shares or for certain classes of shares for these purposes.
Therefore, and as it cannot be otherwise, the law establishes that the capital reduction will affect all the partners equally, who will see their capital stock reduced in proportion to the percentage they own, without a reduction that affects different partners unequally, thus disadvantaging some over others.
That said, it is also necessary to take into account a series of legal prohibitions or restrictions in this type of operations, since:
Regarding the formal requirements for the execution of this capital reduction due to losses, the reader should also bear in mind that:
Finally, interested parties should also be aware that, once the capital reduction agreement has been executed, it will entail a series of consequences that will affect the company in the future, since:
From a teleological interpretation of Article 274 of the Capital Companies Act, it can be inferred that the legislator intends that all capital companies should have a legal reserve of up to twenty percent of the share capital, since it obliges them to allocate from their profits, a figure equal to ten percent per year until reaching the aforementioned twenty percent.
This figure can therefore be achieved by periodically allocating the legal reserve from the company's profits (which would be the ideal situation) or, as the case may be, by a capital reduction to allocate the legal reserve, thus reducing the company's capital in order to increase the legal reserve.
The specific regulation applicable to this type of reduction can be found in Article 328 of the Capital Companies Act, which establishes that the provisions of Articles 322 to 326 of the Capital Companies Act shall apply to the reduction of capital for the creation or increase of the legal reserve, the content of which has already been explained above, but which is detailed again for the benefit of those interested. Therefore:
One of the most logical reasons for the reduction of capital stock is when the partners of the company wish to achieve the restitution of the value of the contributions they made at the time. Thus, by means of this disinvestment operation, the partners of the capital companies can manage to recover all or part of the investment they made in the company, which entails the consequent decapitalization of the company.
As can be assumed, in certain cases, the shareholders of a company may reach the conclusion or decision that they no longer wish to continue investing their capital in the company, for which purpose, in addition to the sale and purchase of shares or equity interests, they may resort to a capital reduction. Likewise, another situation that may generate the need to carry out an operation of these characteristics may be those situations in which the companies are "overcapitalized", that is to say, that they have higher levels of equity than they really need to develop their activity, with the consequent penalization of profitability for the capital. In order to avoid these situations, it may also be interesting to resort to the figure of the reduction of share capital.
Entering into the regulatory scope of this type of capital stock reduction, it is necessary to point out the following basic issues:
Firstly, that in accordance with Article 329 of the Capital Companies Law, regarding the requirements of the resolution, when the resolution to reduce the value of the contributions does not affect all the holdings or all the shares of the company equally, it will be necessary, in the case of limited liability companies the individual consent of the holders of those participations and, in corporations, the separate agreement of the majority of the shareholders concerned, adopted in the manner provided for in Article 293 (i.e., by the favorable vote of the absolute majority of each of the different classes of shares, if any, that there may be).
And likewise, as a second fundamental issue, it is necessary to state for the record that the return of the value of the contributions to the shareholders must be made pro rata to the paid-up value of the respective shares (i.e., in proportion to the capital stock held by each shareholder), unless another system is unanimously agreed upon (Article 330 of the Capital Companies Act).
In this last type of reduction of capital stock, a key issue is undoubtedly the protection of creditors, since this instrument, if their rights are not guaranteed, could be used by the partners of the companies to recover their investment to the detriment of the creditors of the company, which could run the risk of being decapitalized and run out of funds to effectively respond to the corporate debts incurred. Given the importance of the matter, the legislator has dedicated several precepts to this matter, the main characteristics of which will be detailed below, differentiated according to the type of company in question:
A) The protection of creditors of limited liability companies:
Thus, in accordance with Article 331 of the Capital Companies Law, the shareholders to whom all or part of the value of their contributions have been returned shall be jointly and severally liable among themselves and with the company for the payment of corporate debts incurred prior to the date on which the reduction was enforceable against third parties.
This liability of each partner shall be limited to the amount received as restitution of the corporate contribution, and shall expire five years after the date on which the reduction was enforceable against third parties.
As a measure to ensure this liability, the entry in the Mercantile Registry of the execution of the reduction resolution must state the identity of the persons to whom all or part of the corporate contributions have been returned or, as the case may be, the declaration of the administrative body that the reserve detailed below has been constituted, since it will be possible to avoid this joint and several liability when, when the reduction is agreed by means of the restitution of all or part of the value of the corporate contributions, a reserve charged to profits or free reserves is set up for an amount equal to the amount received by the partners as restitution of the corporate contribution.
This reserve will not be available until five years have elapsed from the date of publication of the reduction in the Official Gazette of the Mercantile Registry, unless all corporate debts incurred prior to the date on which the reduction was enforceable against third parties have been paid before the expiration of said period (Article 332 of the Capital Companies Act).
Finally, in the area of limited liability companies, it is also necessary to record the statutory right of opposition enjoyed by the company's creditors (Article 333 of the Commercial Registry Regulations), by virtue of which the bylaws may establish that no resolution to reduce the capital that involves the restitution of their contributions to the shareholders may be carried into effect without the lapse of three months from the date on which the creditors were notified.
As a guarantee of this right of opposition, the aforementioned provision establishes that any restitution made before the expiration of the three-month period or in spite of opposition filed, in due time and form, by any creditor, shall be null and void.
B) The protection of creditors of corporations:
In the area of corporations, in accordance with Article 334 of the Capital Companies Law, creditors will also have the right to oppose the reduction resolution, since it establishes that creditors of the corporation whose claims arose prior to the date of the last announcement of the capital reduction resolution, have not matured at that time and until such claims are guaranteed, will have the right to oppose the reduction.
This right of opposition will also be limited by the restrictions imposed by Article 335 of the Capital Companies Law, by virtue of which creditors may not oppose the reduction in the following cases:
Finally, as regards the terms and effects of the exercise of this right, it is necessary to take into account that in order to exercise this right of opposition, the creditor will have a period of one month from the date of the last announcement of the resolution (Article 336 of the Capital Companies Law) and, in the event that this right is exercised, the reduction of the capital stock may not be carried out until the company provides a guarantee to the satisfaction of the creditor or, otherwise, until it notifies the creditor of the provision of a joint and several guarantee in favor of the company by a credit institution duly authorized to provide such guarantee for the amount of the creditor's claim and until the statute of limitations to demand compliance has expired (Article 337 of the Capital Companies Act).
The figure of treasury stock is regulated in Articles 134 and following of the Capital Companies Law, which can be defined as those situations in which a capital company acquires the ownership of part of its own shares or equity interests.
This instrument may be used by the shareholders to dispose of part of their shares or equity interests and then agree to their redemption (i.e., their disappearance) by means of a reduction of capital stock.
The regulation of this modality can be found in Articles 338 to 442 of the Capital Companies Law, which establishes, firstly, that when the reduction of capital is to be carried out through the acquisition of participations or shares of the company for their subsequent amortization, the acquisition must be offered to all the shareholders.
Likewise, if the reduction resolution were to affect only one class of shares, it must be adopted with the separate agreement of the majority of the shares belonging to the affected class.
As regards the takeover bid (Article 339 of the Capital Companies Law), in the case of limited liability companies, the bid will be sent to each of the shareholders by registered mail with acknowledgment of receipt, while in the case of public limited companies, the takeover proposal must be published in the Official Gazette of the Commercial Registry and in a newspaper with wide circulation in the province in which the company has its registered office, which must be maintained for at least one month, It shall include all the information reasonably necessary to inform the shareholders who wish to sell and, if applicable, shall state the consequences of the shares offered not reaching the number fixed in the resolution (however, when all the shares are registered, the bylaws may allow the publication of the offer to be replaced by sending it to each of the shareholders by registered mail with acknowledgment of receipt).
Once the acquisition offer has been made (for which the acceptance period will be computed from the date the communication is sent), two situations may occur:
Finally, the shares acquired by the company must be amortized within three years from the date of the tender offer, while the shares acquired by the company must be amortized within one month from the end of the tender offer period (Article 342 of the Capital Companies Act).
As a note, it is also interesting to know that, in this type of operation, as an incentive, bonuses may be attributed to the holders of the redeemed shares, specifying in the reduction agreement the content of the rights attributed to these bonuses, which may not include voting rights (article 341 of the Capital Companies Act).
Finally, as a more technical matter, it is necessary to point out that in certain cases it may be necessary to simultaneously reduce and increase the capital stock (Articles 343 to 345 of the Capital Companies Law), which will proceed when it is agreed to reduce the capital stock to zero or below the minimum legal amount in order to simultaneously adopt the transformation of the company or the increase of its capital up to an amount equal to or greater than the aforementioned minimum amount.
In these cases, in which in any case the shareholders' right of assumption or preferential subscription must be respected, the effectiveness of the reduction resolution will be conditioned, if applicable, to the execution of the capital increase resolution, and its registration in the Mercantile Registry will not be possible unless the transformation or capital increase resolution is simultaneously submitted for registration, as well as, in the latter case, its execution.
From a formal point of view, it must be taken into account, as it cannot be otherwise, that it will be necessary to adapt the statutory provision relating to the capital stock of the company, since, logically, the capital increase agreed and materialized modifies what was previously provided therein. Therefore, in the deed of reduction of capital stock that is granted, a new wording must be given to the article of the bylaws relating to capital stock, in line with the reduction carried out. Subsequently, as is logical, this deed of reduction of capital stock must be registered with the Mercantile Registry.
One of the most relevant issues in this type of operations is undoubtedly the tax cost of capital reductions, especially those aimed at returning the contributions made by individual shareholders.
In the latter case, the current regulations (articles 33.3.a of Law 35/2006, of November 28, regulating Personal Income Tax and article 75.3.h of its implementing regulations) establish that if the amount of the contributions returned exceeds the value of the acquisition, this difference or excess will be taxed as income from movable capital in the income tax, not being subject to withholding or payment on account. However, if such reduction comes from undistributed profits, the totality of the amounts received will be taxed as such, being subject to withholding and payment on account.
Likewise, shareholders who carry out this type of transaction should bear in mind that reductions of capital stock will be subject to the Transfer Tax and Stamp Duty, in the form of corporate transactions, the current tax rate in Catalonia being 1% (Royal Legislative Decree 1/1993, of September 24, 1993).
In order to execute a deed of reduction of capital stock, it is only necessary to contact the notary's office (by calling the telephone number of the notary's office or at the e-mail address mercantil@jesusbenavides.es) and make an appointment on the day and time most convenient for the grantors.
On the agreed date and time, the grantors must simply go to the notary's office with the necessary documentation (see section on necessary documentation) to sign the corresponding deed, which will be drafted based on the minimum legal content required and the forecasts and needs of the clients in question.
In any case, if the interested parties need assistance in relation to the models of certificates resulting in the adoption of the necessary corporate resolutions for the statutory amendments to be dealt with, they can contact the notary's office for assistance and advice in this regard.
If the interested party so desires, the authentic copy of the deed of reduction of capital stock can be delivered to him/her on the same day of the signing, but in such case, he/she will have to go to the Commercial Registry to register it.
Of course, if so desired, it is possible to entrust this management to the notary's office itself, which will telematically send the deed to the Commercial Registry in order to obtain its registration.
Once this has already taken place, the authentic copy of the deed will be delivered to the grantors, which will be much more useful, since from that moment on the document will be able to have all its effects.
It is enough that the administrator or representative of the company goes to the notary's office with his ID card. In the case of a foreign person, he/she must present to the notary his/her original and valid passport. In addition, the NIE must be presented together with the aforementioned passport.
Normally it will be necessary to provide the certification of the resolution of the general meeting or of the decision of the sole shareholder resulting in the capital reduction, the amount to be reduced and the procedure to carry it out. The notary's office can advise and assist in the preparation or preparation of this type of certificate at no additional cost.
The relevant documentation relating to the company within which the capital reduction is intended to be made must be presented before a notary. For this purpose, the authentic copy of the deed of incorporation of the company must be provided, as well as any subsequent deed modifying the articles of association. However, from the notary's office we can access telematically to the Mercantile Registry where the company is registered in order to verify part of such documentation and corroborate the data that are in force at the moment of granting the deed of capital reduction.
Practically every time someone goes to sign at a notary's office on behalf of a company, it is mandatory to identify at that moment, before the notary, which partners (even if not present) within the company hold more than 25% of the capital stock of the company at that moment. In order to carry out such identification, the Law obliges to exhibit the authentic copy of the corresponding notarial deed called "Acta de titular real". Almost certainly, a new certificate of beneficial ownership will have to be signed as a consequence of the capital reduction, since the percentages of the current partners within the capital of the company usually vary.
In the case of a reduction of capital stock due to losses, the balance sheet and the corresponding auditor's verification, not older than six months, must also be submitted.
In the case of a corporation, the report justifying the proposed amendment of the bylaws that causes the reduction of capital stock must also be submitted. In the case of corporations, a copy of the announcement of the capital reduction resolution in the Official Gazette of the Mercantile Registry and on the company's website or, if not available, in a newspaper of wide circulation in the province in which the company has its registered office, must also be provided.
