Spain: Legal Highlights Of Doing Business In Spain By A Foreign Investor - Part 5 of 17

Last Updated: 28 July 1995

2.3 Limited Partnerships (Sociedades en Comandita por Acciones).

Law 19/1989 regulated explicitly for the first time the Limited Partnership by shares which to some extent is surprising since this corporate vehicle was out of fashion. Seven new articles have been dedicated by said Law to this type of company which are added to those that traditionally regulated the so called "simple" Limited Partnership. These articles replace the former applicable legislation contained in Articles 145 through 150 of the Code of Commerce.

The main features of this type of company are the following:

a) Legal personality.
A Limited Partnership is also formed by means of a notarial instrument (escritura publica) which must be recorded at the relevant Commercial Register. The Limited Partnership shall only acquire a separate legal personality upon registration.

b) Liability.
There are two types of members: the general partner who must have unlimited liability and the "limited" partners who are not liable for the company's debts but up to the shares subscribed for (30).

c) Capital.
The minimum capital required to set up a limited partnership in Spain is 10,000,000 pesetas (31). This requirement must be met by any company created after the date of publication of Law 19/1989 (27 July 1989). The capital must be fully subscribed for and at least 25% of each share paid up. The balance must be paid in the form and within the period of time set forth in the articles of association or agreed by the directors (32).

d) Number of partners.
The minimum number of founding partners is three. However, the absence of at least two real (not nominees) founding partners may give cause of action to nullify the company (33). The general partners may be Spanish or foreign individuals and the limited partners may be Spanish or foreign individuals or companies, subject to the limits and requirements established by the foreign investment legislation.

e) Administrators.
The management of the Limited Partnership must be entrusted to all the general partners of the company who shall have the same rights and duties that the directors of companies limited by shares as set forth in the Limited by Shares Companies Act.

f) Accounts.
The rules are similar to those set forth for companies limited by shares and limited liability companies under 2.1.f) and 2.2.h) above.

2.4 Comparison between Companies Limited by Shares and Limited Liability Companies.

The limited liability company is exempt from the following main requirements that do apply to companies limited by shares:

Publication of the incorporation in the Commercial Register Official Bulletin, an independent expert's report in the event of contributions in kind and the filing of such report at the Commercial Register, the approval by the members of any acquisitions of assets for consideration within two years following incorporation, report of the directors on any proposed capital increases and publication of the capital increase(s) in the Commercial Register Official Bulletin.

With minor qualifications, common requirements and rules to both forms of company, however, relate to management, the annual report and accounts, the consolidation, audit and filing of the accounts at the Commercial Register, the merger, division and dissolution and liquidation of the company. In the same way as companies limited by shares, limited liability companies are required to consolidate their accounts with those of their subsidiaries in certain circumstances, and to have their accounts audited and filed at the Commercial Register. Exceptions to these requirements have been set forth under 2.1. f) above and are also common to companies limited by shares and limited liability companies.

More stringent rules exist for limited liability companies in connection with the issue of securities, taking of own participations as collateral, financial assistance for own participations purchases and financial assistance to its partners and managers.

2.5 Public take-over offers
Public take-over offers are regulated by the Royal Decree 1197/1991 of 26 July issued by the Ministry for Economy and Finance, published on 2nd. August 1991 (34). The Regulation, which aims at avoiding a discriminatory treatment against shareholders with a legitimate expectation to sell their shares in the same conditions as their fellow shareholders', compels to make a take-over offer when a person or entity intends to reach a significant participation in the voting stock of a company whose shares are totally or partially traded in the Stock Exchange.

Mandatory Public Take-Over Offers.
The Regulation establishes three specific cases in which it is understood that a significant participation in the capital of a company can be reached and in which, therefore, it is mandatory to make a Take-Over Offer:

a) Where a participation equal to, or higher than, 25% but less than 50% of a company's stock is sought. In this case, the offer must be made for a number of shares representing, at least, 10% of the stock of that company;

b) Where the offeror already owns a participation of 25% or more but less than 50% of the stock of the company, and wishes to increase this participation in, at least, 6% of the share capital within a period of twelve months. In this case, the offer must be made for a number of shares representing at least 10% of the company's stock;

c) Where a participation equal to, or higher than, 50% of a company's stock is sought. In this case, the offer must be made for a number of shares representing, at least, 75% of the stock of that company.

In order to calculate the foregoing percentages of significant participation, the shares belonging to a same group or to third parties that act in their own name but for the account of, or in a concerted manner with, the former will be deemed owned or acquired by the same individual or entity. When the acquisition consists of a simple stock redistribution among companies of a same group, without altering the decision making or the control unity, there will be no obligation to make a public offer.

Special cases of Take-Over Offers.
In addition to the three general cases previously mentioned, there are certain situations in which a Take-Over offer is also mandatory:

a) In the event of the merger or the take-over of a company, whether listed or not, having a direct or indirect participation in the share capital of a third one whose shares are quoted on the stock market;

b) In the event the holder of shares representing more than 50% of the voting stock of a listed company intends - for the first time since acquiring or recovering such percentage - to introduce substantial amendments to the company's by-laws;

c) In the event that a listed company decides to withdraw from the stock market so long the decision is acceptable to the Stock Market National Commission since such withdrawal could be deemed prejudicial to the legitimate interests of the shareholders.

Voluntary Public Take-Over Offer.
Those which are carried out not being mandatory. The same rules and procedures laid down for the mandatory take-over offers apply.

Procedure for Public Take-Over Offers.
The offer requires the approval of the Stock Market National Commission. The time limit of acceptance will be set by the offeror, not being less than one month nor more than twelve months. When the time limit notified in the brochure lapses, the outcome of the offer shall be published on the "Quotation Bulletin". The offer shall be void if it is not accepted by at least the number of shares the offer was subject to, unless the offeror waives the condition in the liquidation phase and acquires all the shares offered.

Competitive Take-Over Offers.
Are those that affect the shares on which completely or partially another Public Take-Over Offer has been presented at the Stock Market National Commission. The Competitive Take-Over offers must seek to acquire at least the same number of shares as the preceding offer, increasing the price in, at least, 5%, or extending the offer to a number of shares above 5%.

Acquisition of shares without making Public Take-Over Offers in those cases in which they are mandatory.
The penalty for acquiring listed shares without making a Public Take-Over Offer in those cases in which such an offer is mandatory is the temporary deprivation of the corporate rights derived from the shares (the right to attend and vote at General Meetings; the pre-emption right to subscribe new shares; the right to challenge company's resolutions except those that are against the Law; and, in general, all rights that are not exclusively of an economic nature). Further, the resolutions passed calculating to that effect shares which rights have been suspended shall be null and void. These rights may only be recovered if (i) a take-over offer is made on the rest of the shares; or (ii) the remaining shareholders unanimously agree to it, such concurrence to be expressed individually.

(30) Article 151 of the Code of Commerce as amended by Law 19/1989.

(31) Article 152 of the Code of Commerce as amended by Law 19/1989 which refers to the Limited by Shares Companies Act.

(32) Article 152 of the Code of Commerce as amended by Law 19/1989 which refers to the Limited by Shares Companies Act, and articles 12 and 42 of the Restated Text.

(33) Article 152 of the Code of Commerce as amended by Law 19/1989 which refers to the Limited by Shares Companies Act, and article 34.1 d) of the Restated Text).

(34) There are also rules for public sale offers of securities, namely article 61 of the Securities Exchange Market Act, the Royal Decree 291/1992 of March 27th and Order of July 12th, 1993.

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 a text search "L. C. Rodrigo Abogados" and "Business Monitor".

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