Purchase and sale of participations or shares

In the analysis of the transferability of corporate shares, there are several specific issues to be considered, which will be discussed below:

1) Form of documenting the transmission:

Pursuant to Article 106 of the Capital Companies Law, the transfer of the shares, as well as the constitution of the real right of pledge over them, must be recorded in a public document, so that in this case the legislator is quite clear, requiring the public deed to convey the sale of the shares of a limited liability company.

2) Restrictions on the free transferability of inter vivos shares:

Having solved the formal issue (i.e. the need to grant the corresponding deed), it is necessary, secondly, to analyze what conditions and limitations the law establishes for the transfer of the shares. At this point, the reader should not lose sight of the eminently closed nature of the limited liability company, in which the legislator tries to prevent access to its shareholding to persons outside the initial shareholding composition, an idea which, as will be seen, presides over the regulation on this matter.

Thus, by virtue of Article 107 of the Capital Companies Act, unless otherwise provided in the bylaws, the voluntary transfer of shares by inter vivos acts between shareholders, as well as those made in favor of the spouse, ascendant or descendant of the shareholder or in favor of companies belonging to the same group as the transferring company, shall be free.

Outside these restricted cases, i.e., in all other cases, the transfer of the shares of the limited liability company is subject to the rules and limitations established in the bylaws and, in the absence thereof, to those established by law.

2.1. Statutory limitations: In this respect, the doctrine has traditionally distinguished four main types of clauses:

1. Permanence clauses, by virtue of which the partners of the company are required to continue to maintain such condition for a determined period of time, highlighting the subjective nature of the partners, especially in limited liability companies.
2. Clauses establishing preferential acquisition rights, by virtue of which the current partners of the company are recognized as having the right to acquire, as a priority over third parties outside the company's capital, the shares of other partners who wish to dispose of them.
3. Drag-along" clauses, whereby when a third party makes an offer to the majority shareholder of the company to acquire a greater percentage of the shares than it owns, the minority shareholders are also obliged to accept this offer.
4. Accompanying clauses, by virtue of which, when a partner receives an offer to sell its shares, the rest of the partners may also adhere to this sale under the same conditions offered.

In any case, these statutory clauses must be subject to the limitations imposed by Article 108 of the Capital Companies Act, which establishes that:

• Any clauses in the bylaws that make the voluntary transfer of shares by inter vivos acts practically free shall be null and void.
• Any clause in the articles of association whereby a shareholder who offers all or part of his shares is obliged to transfer a different number of the shares offered shall be null and void.
• Clauses prohibiting the voluntary transfer of shares by inter vivos acts shall only be valid if the bylaws recognize the partner's right to withdraw from the company at any time, and in any case the consent of all partners shall be required for the incorporation of clauses of this nature in the bylaws.

2.2. Legal limitations: Once the statutory limitations have been overcome, the law (Article 107.2 of the Capital Companies Act) also requires compliance with a series of formalities that must be fulfilled in order for the transfer of the shares to take place, namely:

• The shareholder proposing to transfer his share or shares must notify the directors in writing, stating the number and characteristics of the shares he intends to transfer, the identity of the acquirer and the price and other conditions of the transfer.
• The transfer shall be subject to the consent of the company, which shall be expressed by means of a resolution of the General Meeting (after inclusion of the matter on the agenda, adopted by the ordinary majority established by law). 
• In this case, the company can only refuse consent if it communicates to the transferor, through a notary public, the identity of one or more partners or third parties acquiring the totality of the shares (no communication to the transferor being necessary if the latter attended the general meeting where such resolutions were adopted). In relation to this, it is also necessary to know that:
• ~The members attending the general meeting at which this resolution is to be adopted shall have preference for the acquisition.
• ~If there are several concurrent partners interested in acquiring, the shares shall be distributed among all of them pro rata to their participation in the capital stock.
• ~When it is not possible to communicate this circumstance to one or more shareholders or third party acquirers, the general meeting may resolve that the company itself shall acquire the shares that no shareholder or third party accepted by the general meeting wishes to acquire (known as treasury stock).
• The price of the shares, the form of payment and the other conditions of the transaction shall be those agreed and communicated to the company by the transferring shareholder and, if the payment of all or part of the price is deferred in the transfer plan, the acquisition of the shares shall be subject to the prerequisite that a credit institution guarantees the payment of the deferred price.
• The public document of transfer must be executed within one month from the date of communication by the company of the identity of the acquirer or acquirers, taking into account that, in any case, the shareholder may transfer the shares under the conditions communicated to the company when three months have elapsed since he has informed the company of his intention to transfer without the company having communicated to him the identity of the acquirer or acquirers.

Finally, it should be noted that the transfer of shares that do not comply with the provisions of the law or, as the case may be, with the provisions of the bylaws, will not produce any effect against the company (Article 112 of the Capital Companies Act).

Another interesting question that should undoubtedly be analyzed is the possibility of the shares acquired being acquired by the company to which they refer. This possibility, known as treasury stock, is regulated in the case of limited liability companies in Articles 140 to 143 of the Capital Companies Law.

They establish that the limited liability company may only acquire its own shares in the following exceptional cases:

• When they form part of a universally acquired patrimony, or are acquired free of charge, or as a consequence of a judicial adjudication to satisfy a claim of the company against the holder thereof.
• When own shares are acquired in execution of a resolution to reduce capital stock adopted by the general meeting.
• When own shares are acquired within the framework of a forced transfer derived from an execution procedure.
• When the acquisition has been authorized by the general meeting, is made out of profits or unrestricted reserves and concerns shares of a shareholder separated or excluded from the company, shares acquired as a result of the application of a clause restricting the transfer thereof, or shares transferred mortis causa.

In any of these cases, once acquired by the company itself, these shares must be amortized or disposed of (in this case respecting the legal and statutory regime) within three years at a price never lower than their fair value.

Although far from the object of the deed of sale of shares, it is necessary for the reader to be aware that the Capital Companies Act (articles 109 and 110 respectively) establishes a series of specifications for the indicated modalities of transfer.

Thus, with regard to the compulsory transfer of the shares, it is necessary to know that, in the event that in the context of an enforcement proceeding there is a seizure of the company's shares that concludes with an auction of the same, at the time prior to the approval of the auction and the awarding of the shares, this situation will be notified to the company and this in turn to all the shareholders so that, if there is a preferential acquisition right, they may exercise it within a period of one month, subrogating themselves to the position of the auctioneer.

With regard to the system for the transfer of shares upon death, it should be noted that the acquisition of a shareholding by inheritance confers on the heir or legatee the status of shareholder. However, the bylaws may establish in favor of the surviving shareholders and, failing that, in favor of the company, a right of acquisition of the shares of the deceased shareholder, valued at the reasonable value they had on the date of the death of the shareholder, the price of which will be paid in cash.

In order to assess the different cases that can be found in reality with regard to the transfer of shares of public limited companies, as has been done previously, we will proceed to differentiate individually each of the different situations with their own substantive nature, so that interested parties may be aware of the main characteristics of each of them:

Thus, in the event that the shares are represented by certificates (which in turn may be registered or bearer shares, as mentioned above), the transfer of the shares will have the following variants:

A. Securities not printed or delivered: The law enables corporations whose shares are represented by securities to print them by the corporation itself (i.e., to incorporate them into physical documents with the requirements of Article 114 of the Capital Companies Law) or not.

If they are not, which is the case in most corporations, the transfer of the shares will proceed in accordance with the rules on the assignment of credits and other incorporeal rights (Article 120.1 of the Capital Companies Act), for which it will be necessary to resort to the provisions of Article 1,526 of the Civil Code in relation to its Articles 1.218 and 1.227, from which it follows that: "The transfer will not take effect against third parties unless its date must be considered as certain, which will happen when the corresponding public document is granted, which will be proof of the fact that motivates its granting, of the date of this and of the declarations that the contracting parties have made".

Thus, from the joint interpretation of all these precepts, it can be stated that in the case of shares represented by registered certificates not yet printed or delivered (which is the case in the vast majority of corporations), the transfer of such shares must be instrumented through the corresponding public deed in which the essential characteristics of the legal business, such as the contracting parties, the object, the price and other conditions of the transaction, are set forth.

In any case, once the transfer has been accredited, the administrators must immediately record it in the book-register of registered shares.

B. Printed and delivered securities: In the event that the shares of the company, represented by securities, have been printed and delivered to the shareholders under the terms of Article 114 of the Capital Companies Law, the following situations can be differentiated: 

1. Bearer instruments: Their transfer will be subject to the provisions of Article 545 of the Code of Commerce, which establishes that they will be transferable by the tradition of the document (i.e., by its physical delivery to the new owner). Thus, with the mere existence of a contract of transfer of ownership and the physical delivery of the bearer instruments, their transfer will have been perfected.
2. Registered shares: In the case of registered shares printed and delivered, their transfer shall be carried out by endorsement (Article 120.2 of the Capital Companies Act), in which case, on the back of the share, the contracting parties shall state the transfer of ownership, indicating the new owner. 
   

This transfer must then be accredited to the company by showing the certificate to the administrators, who, after verifying the regularity of the chain of endorsements, shall record the transfer in the book-register of registered shares.

In the event that the shares are represented by book entries (typical of large listed companies), their transfer will take place by book transfer, whose registration in favor of the acquirer in the accounting register by the entity in charge of keeping the register will produce the same effects as the tradition of the securities (article 11 of Royal Legislative Decree 4/2015, of October 23, which approves the revised text of the Securities Market Law).

Our legal system, as already indicated, conceives the corporation as an open corporation whose shares are governed by the principle of free transferability of shares. 

However, the legislator has established a series of cases in which the bylaws may restrict the transferability of the shares of the corporation (Article 123 of the Capital Companies Law), specifically:

• Restrictions or conditions on the free transferability of shares shall only be valid against the company when they apply to registered shares and are expressly imposed in the bylaws.
• If the limitations are established through an amendment to the bylaws, the affected shareholders who have not voted in favor of the resolution will not be subject to it for a period of three months as from the publication of the resolution in the Official Gazette of the Mercantile Registry.
• The transferability of the shares may only be conditioned to the prior authorization of the company when the bylaws mention the grounds for refusing it, in which case (and unless the bylaws provide otherwise), such authorization shall be granted or refused by the directors of the company within a period of two months from the date the corresponding request was submitted, and shall be understood as granted if no response is given within such period.
• In any case, statutory clauses that make the share practically non-transferable will be null and void.

Finally, in this regard, interested parties should also bear in mind that the shareholders may enter into reserved agreements among themselves, under Article 29 of the Capital Companies Act, limiting the transferability of the shares among themselves, but such agreements shall not be enforceable against the company.

The regulation of the so-called treasury stock in corporations, and for the purposes of the present case, in the form of derivative acquisition (since this could be embodied in a deed of sale of shares), can be found in Articles 144 and following of the Capital Companies Act, which establishes that the corporation may acquire its own shares or the shares of its parent company in the following cases:

1. When the treasury stock is acquired in execution of a resolution to reduce capital stock adopted by the general meeting of the company.
2. When the shares are part of a universally acquired patrimony.
3. When the fully paid-up shares are acquired free of charge.
4. When the fully paid-up shares are acquired as a result of a judicial adjudication to satisfy a claim of the company against its holder.

In addition, the corporation may also acquire its own shares and the shares created or the shares issued by its parent company, when the following conditions are met:

1. The acquisition must be authorized by a resolution of the general meeting, which must establish the terms and conditions of the acquisition, the maximum number of units or shares to be acquired, the minimum and maximum consideration when the acquisition is onerous, and the duration of the authorization, which may not exceed five years.
2. That the acquisition does not have the effect that the net worth is less than the amount of the capital stock plus the legal or statutory reserves that are not available for distribution.

In any case, in these two cases, the par value of the shares acquired directly or indirectly, added to those already held by the acquiring company and its subsidiaries and, if applicable, by the parent company and its subsidiaries, may not exceed twenty percent.

As a last issue to be dealt with, as has been done in the area of shares, it is also interesting to briefly study the regime of mortis causa and forced transfer of shares (Articles 124 and 125 of the Capital Companies Law).

With regard to the first type, the aforementioned rule establishes that the statutory restrictions on the transferability of shares shall only be applicable to acquisitions through death when so expressly established in the bylaws.

In these cases, in order to refuse the registration of the transfer in the book of registered shares, the company must present the heir with an acquirer of the shares or offer to acquire them itself for the reasonable value at the time it requested the registration.

Likewise, the procedure described above will be applicable when the acquisition of the shares has occurred as a result of a judicial or administrative enforcement procedure.

Another of the limitations that those interested in granting this type of instrument must take into account is that the transfer of the corporate participations or shares cannot be verified until the deed of incorporation of the company or, as the case may be, of the capital increase, is duly registered in the Mercantile Registry, as this is imperatively imposed by the legislator in Article 34 of the Capital Companies Act.

This limitation must therefore be taken into account for the deeds to be granted.

Another question that many interested parties ask when they go to the notary's office is whether the purchase and sale of shares must be registered in a public registry, such as the Mercantile Registry.

This answer must be answered in the negative, since the legislator has not imposed the obligation, or even the mere possibility, that this type of acts have access to the aforementioned Registry. Likewise, in case there were any doubts, the General Directorate of Legal Security and Public Faith has confirmed this interpretation by deciding that this type of operation will not have access to the Registry of Movable Goods either (see resolution of April 29, 2003).

In any case, it should be taken into account that if, as a consequence of the corporate transaction, all the shares or equity interests of the company become the property of a single person, the company in question will become a sole proprietorship, a characteristic that can be registered in the Mercantile Registry, to which an entry is expressly dedicated in this website.

Another of the main questions that the interested parties ask themselves when carrying out this type of operations is the tax cost that they may entail.

From the point of view of indirect taxation (i.e., VAT or Transfer Tax), it should be noted that, broadly speaking, and without prejudice to certain exceptions, the transfer of shares or stock will be exempt from the aforementioned taxes.

However, in the area of direct taxation, the purchase and sale of shares in companies will be taxed on the capital gain that may have been generated by the seller, all in accordance with the provisions of Law 35/2006, of November 28, 2006, on Personal Income Tax.

In any case, given the complexity of tax regulations, it is always advisable for interested parties to seek the advice of tax experts who can plan the operation for tax purposes in the way that best suits the parties in question.

In order to execute a deed of sale of shares or stock, it is only necessary to contact the notary's office (by calling our office telephone number or email address mercantil@jesusbenavides.es) and make an appointment on the day and time that is 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 corporate resolutions necessary for the act in question, they can contact the notary's office for help and advice in this regard.