The Law provides that agreements entered into for limited periods of time will end at maturity of the agreed term, save that the agreement continues to be carried on in which case it will be deemed that the agreement has been transformed into an unlimited one. Agreements entered into for unlimited periods of time may be terminated at any moment by any of the parties thereto provided such party gives one month's prior notice for each year the agreement was in force with a maximum of six months. In the event of unlimited agreements which were in force for less than a year, one month's notice will suffice.
As an exception to the foregoing rules, either party may cancel the agreement at any moment without a notice of termination being required in the following events: (i) should the other party breach the law or the contract; and (ii) should the other party be declared bankrupt or its application for a voluntary moratorium be admitted by a court of law. In these events it is understood that the agreement is terminated upon reception of the notice of cancellation.
Upon termination of the agreement, be it limited or unlimited, the agent that would have contributed to the creation or the enhancement of the customer portfolio shall be entitled to a goodwill compensation provided that the former activity continues to render substantial benefits to the principal and the compensation is fair in the light of possible non-competition agreements, commissions lost or any other relevant circumstances(41). The goodwill compensation is also payable in the event of decease of the agent to his heirs. The compensation may not exceed an amount equal to the commissions earned in one full year calculated on the average made during the last five years or during the time the agreement was in force if less. Further, this indemnity would not undermine the agent's right to request damages in the event of termination of an unlimited agreement provided that such termination prevented the agent from recovering the expenses incurred upon instructions of the principal for the implementation of the agreement. Damages are not payable under certain circumstances. Claims of either the goodwill compensation or damages are limited to one year(42).
There are also certain commercial representatives who have a special labour relationship with their principal and are entitled under certain circumstances to goodwill compensation and severance pay in case of unfair dismissal. These representatives undertake with one or more principals to promote or conclude commercial transactions for his or their account without accepting the financial risk for the transaction.(43)
Differences with the agency relationship are: the representative never bears the credit and economic risk on sales to customers, does not have an independent business organisation and has a degree of dependency on the principal (employer).
Under the Statute the representative is entitled to:
a) severance pay of 45 days salary per year of service with a maximum of 42 months in the event of unfair dismissal; the monthly salary shall be calculated on the basis of the average of the income made in the two years preceding the dismissal;
b) an additional special compensation for the enhancement of the customer base and number of transactions, provided the following requirements are met:
b1) the agreement was not cancelled due to the agent's fault;
b2) the agent is obliged not to either compete with the principal or work for the principal's competitors.
The compensation shall be calculated by comparing the customer lists established at the beginning and at the end of the agreement taking into account, as the case may be, the increase in the volume of transactions. Failing agreement between the parties the compensation shall be fixed by the Labour Court; in this event the compensation may not exceed an amount equal to the commissions earned in one full year calculated on the average made during the last three years or the time the agreement was in force if less.
Excluded from the ambit of the Statute are, among others, independent or self-employed agents who, as mentioned above, promote or conclude commercial transactions on a continuing or a non-continuing basis for the account of one or more principals as owners of an autonomous business organisation having its own installations and staff. It is legally presumed that such autonomous business organisation does not exist whenever the agent acts under the instructions of the principal with regard to matters such as working hours, itineraries, distribution criteria, prices or form of implementing orders and contracts.
3. FOREIGN INVESTMENT.
3.1 Foreign investors.
Foreign investment in Spain may be held by:
a) any private juridical entity having its domicile outside Spain;
b) any individual -whether a Spanish national or not- who has his domicile or his principal residence outside Spain;
c) the establishments and branches in the Spanish territory of non-resident companies or individuals provided the investment is intended for the creation of Spanish companies or for taking up a share in a Spanish company which may be regarded as direct investment;
d) Spanish companies provided that they are partially or wholly owned by foreign investors in excess of 50% and also provided the investment is intended for the creation of Spanish companies or for taking up a share in a Spanish company which may be regarded as direct investment.
Residence is the main factor to establish when an investment is foreign. Foreign investors taking up residence in Spain will lose such status. Conversely, investments owned by residents in Spain who give up their residence will acquire the foreign investment status.
3.2 Types of contribution.
Foreign investments may be effected by means of the contribution of foreign or domestic capital. These means are:
a) cash;
b) foreign technical assistance, patents and manufacturing licences;
c) foreign capital goods;
d) Any other means or assets.
Contributions in kind must be valued pursuant to the relevant provisions of the Limited by Shares Companies Act.
3.3 Forms of investment.
These are basically direct investments, portfolio investments, real estate investments and other forms of investment (not envisaged explicitly).
3.3.1 Direct investments: these include: (i) participations in a Spanish company (through the incorporation of the company or the total or partial acquisition of shares, subscription rights or convertible bonds) enabling the foreign investor to exert an effective influence in the management or control of the company; effective influence is assumed whenever the foreign investor owns 10% or more of the share capital or has the right to participate directly or indirectly in the management body of the company; (ii) the creation, enlargement or acquisition of branches or establishments and the concession to them of reimbursable advances. Branches or establishments are all those classified as permanent establishments for fiscal purposes; (iii) long term (more than five years) loans to Spanish companies in order to set up or keep lasting economic ties. It is assumed that loans given by an investor holding a direct investment in the borrower or sharing the risks derived from the activity carried on by the borrower (e.g., a joint-venture agreement) comply with those requirements.
3.3.2 Portfolio investments: these include (i) acquisition of shares in Spanish companies, whether listed or not, provided that such transactions do not constitute direct investment pursuant to the criteria laid down in 2.3.1 (i); (ii) the subscription and acquisition of negotiable securities representing debt issued by resident private or public entities and of financial instruments issued by residents; (iii) the participations in Spanish collective investment funds duly authorised or recorded at the Stock Market National Commission.
3.3.3 Real estate investments: these include all forms of real estate investment as described in detail under Section 4 below.
3.3.4 Other forms of investment: joint ventures; co-ownership; foundations; economic interest groupings; cooperative societies and others as may be established by the Government.
3.4 Administrative control.
3.4.1 As a general rule direct investments (in a Spanish company) are free of any administrative control provided that the investment is not subject to the so called verification procedure. Verification is required in the following events:
3.4.1.1 If the foreign participation in a Spanish company exceeds 50% of the company's equity and, in addition, any of the following conditions are met: (i) the actual investment exceeds the sum of 500,000,000 pesetas, or (ii) the foreign participation in the Spanish company exceeds 500,000,000 pesetas whether before, or as a consequence of, the investment.
The capitalisation of reserves and/or the reinvestment of profits are exempt from the verification procedure even if those conditions are met. 3.4.1.2 If the long term loans mentioned in 3.3.1 (iii) exceed 500,000,000 pesetas or come from countries and territories which by regulation are deemed to be tax havens(44).
3.4.1.3 If the foreign participation exceeds 50% of the company's equity, irrespective of the actual amount of the investment, and any of the foreign investors in such Spanish company is either a company or an individual with residence in any of the countries and territories which by regulation are deemed to be tax havens (see list in footnote 44);
3.4.1.4 If the capital allocated to a branch or establishment exceeds 500,000,000 pesetas whether before, or as a consequence of, the investment. The allocation of profits or the concession to them of reimbursable advances are exempt from the verification procedure even if the 500 million peseta limit is reached;
(41) Article 28 of Law 12/1992, of May 27.
(42) Article 31 of Law 12/1992, of May 27.
(43) This type of relationship is regulated in detail in Article 2.1, f) of the Workers' Statute, and the Royal Decree 1438/1985 of August 1st.
(44) The Royal Decree 1080/1991 of 5 July, published on 13 July 1991, defines the following countries or territories as tax havens: Andorra; The Netherlands Antilles; Aruba; Gibraltar; Panama; Monaco; Hong Kong; Isle of Man; Guernsey and Jersey (The Channel Islands); Caiman Islands; British Virgin Islands; Virgin Islands (U.S.A.); Liechstenstein; Liberia; Lebanon; Singapore; Macao; San Marino; Malta; Jamaica; Cyprus; United Arab Emirates; Bahamas; Barbados; Bermuda; Antigua and Barbuda; Fiji; Trinidad and Tobago; Jordan; The Seychelles; Mauritius; Anguilla; The Mariana Islands; The Falkland Islands; Turks and Caicos Islands; Cook Islands; Grenada; Montserrat; Saint Vincent and the Grenadines; Saint Lucia; Solomon Islands; Dominica; The Emirate of Bahrein; The Sultanate of Brunei; The Sultanate of Oman; Vanuatu; Nauru; and, finally, The Grand Duchy of Luxembourg. In this last case, it appears that the limitation would only apply to investments made by companies enjoying the special holding companies status in Luxembourg.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstance.
For further information contact Mr. Jorge Angell, L. C. Rodrigo Abogados, Madrid (Spain) Fax: 010 341 576 6716, or enter text search 'L.C. Rodrigo Abogados' and 'Business Monitor'.
