h.1.3) The merger balance sheet.

The latest balance sheet approved may be regarded as the merger balance sheet provided that it has been closed within six months prior to the meeting at which the merger is to be discussed. Otherwise a new balance sheet should be prepared as at the first day of the third month preceding the merger project(22).

The values stated in such balance (s) may be adjusted taking into account those important modifications in the market values that have not been reflected in the accounting entries.

h.1.4) The merger resolution.
The merger must be approved by the general meetings of the shareholders of each of the companies involved subject to the terms of the merger project(23).

Contrary to the general regime, the notice convening the meetings should be published at least one month before the date of the relevant meetings. It will include the minimal contents of the merger project and will inform the shareholders, bondholders and holders of rights other than shares about their right to inspect the documents listed above at the Companies' premises and to obtain a copy thereof.

Special quorum and majorities are required for the approval of mergers (see section d.).The resolution approving the merger must be published three times in the Commercial Register Official Bulletin and in two newspapers of wide circulation in the provinces where the companies have their registered offices. The right of the shareholders and creditors to obtain the full text of the resolution and of the merger balance sheet must be stated in the publication.

h.1.5) Right to oppose.
Generally, any creditor of the companies involved in the merger has the right to oppose the merger until repayment is fully secured(24).

h.1.6) Separation Rights.
Shareholders disapproving the merger do not have the right to separate and withdraw from the company.

h.2) Divisions.
There are two types of division: (i) where the assets and undertakings of a company, which is wound up, are divided in two or more parts that are transferred as a whole to a new company or are acquired by an existing company, and (ii) where the assets and undertakings of a company, which is not wound up, are divided in one or several parts that are transferred as a whole to one or more new companies or to an existing company(25).

Generally, the rules on mergers apply to divisions.

h.3) Taxation.
Companies wishing to merge or divide may have rollover relief(26). This allows companies to defer taxation of capital gains. For tax purposes only the assets are deemed to be transferred at book value (without any revaluations) in such a way that any taxation is deferred until such time in which the absorbing or acquiring company disposes of those assets. At that moment the capital gains made upon the disposition are taxed. The referential purchase cost to establish the relevant capital gain will be the book value in which the assets were transferred to the absorbing company.

Companies wishing to have rollover relief are only required to notify such intention to the Tax Authorities, however they may also waive this relief (27).

Indeed Companies wishing to merge may also waive the rollover relief in which case any capital gains made upon the merger would be added to the taxable base and taxed accordingly under the Corporate Tax. This option may be attractive in the event the Company has, for instance, losses which could be offset against the capital gains. In this case the Company would normally revalued its assets but to prevent unjustified revaluations the resulting real value may not exceed one limit: the market value.

As to the shareholders the capital gain arising from the exchange of shares is defined by the difference between the "real value" of the shares received and the book value or the acquisition cost of those surrendered, but similarly to companies the capital gain is rolled over indefinitely by incorporating the shares to the shareholder's portfolio at the same value that those surrendered in exchange for the new one(28). Specifically in the case of non-resident shareholders the allocation of shares in the merged Company might not be subject to taxation in Spain but if applicable in their country of residence should there be a Double Taxation Convention between Spain and the relevant country.

2.2 Limited Liability Companies (Sociedades de Responsabilidad Limitada).
Law 19/1989 amended numerous provisions of the current Limited Liability Companies Act of 17 July 1953 and introduced new provisions. The Law also required the Government to enact a restated text of this Act. This has been done by Law 2/1995 of March 23, to be effective on June 1st. 1995.

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

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

b) Liability.
A Limited Liability Company shall also have its own capital divided not into shares but into participations (which are not shares). The liability of the members is limited to the value of the participations they agree to acquire. While this is the general rule, the technique leading to pierce the corporate veil is not unknown and may be applied under certain circumstances as elaborated by case law.

There are restrictions on companies owning their own equity and having "interlocking shareholdings". The rules on interlocking holdings for companies limited by shares also apply to limited liability companies(29).

c) Capital.
The minimum capital required to set up a Limited Liability Company in Spain is 500,000 pesetas. This requirement must be met by any company created after the date of publication of Law 19/1989 (27 July 1989). Existing companies at that date were compelled to increase their capital up to at least that amount before 30 June 1992 if they wished to keep that corporate form.

A substantial modification introduced by said Law is that there will be no cap on the capital a limited liability company may have where formerly this was 50,000,000 pesetas beyond which it was compulsory to form a company limited by shares. The capital must be fully paid in upon incorporation.

d) Number of members.
Beginning on June 1st, 1995, any limited liability company may have one or more partners. Until that day, they must have a minimum of two and a maximum of 50 partners. In practice, however, companies have often operated after incorporation with less or even just one partner by the simple means of transfers of participations among the partners. This has not been so far a legal cause for dissolution and liquidation or for imposing unlimited liability on the single partner, even though there exists case law concerning single member companies whose single member has been found under certain circumstances personally liable for the company's debts. But beginning on June 1st, 1995, pre-existing single member companies must disclose such fact to the Commercial Register before January 1st, 1996. Failure to effect such a disclosure will result in the single member personal, unlimited and joint and several liability for the company's debts incurred during the period of time in which he was the single member. The single member is not liable for those debts incurred after the position is disclosed and recorded at the Commercial Register. Disclosure is also required if a company turns to be a single member company. Failure to effect disclosure within six months of having acquired such condition, will entail the consequences outlined above.

The members may be either individuals or legal entities, Spanish or foreign, the latter subject to the limits and requirements established by the foreign investments legislation.

e) Transfer of participations.
The transfer of the participations in the company requires a public deed (generally a notarial instrument) which does not have to be recorded with the Commercial Register as in the past.

f) Resolutions.
Resolutions may be adopted with the favourable vote of the majority of the votes validly cast, provided that they represent at least one third of the votes attached to the participations in which the equity is divided. There are qualified majorities to adopt certain resolutions. The articles of association may provide for special and higher majorities, and even for the additional requirement that any resolution must be endorsed by the favourable vote of a certain number of partners.

Where single member companies are concerned, all of the powers pertaining to the shareholders shall rest upon the single member whose decisions must be recorded in writing.

g) Directors.
The management of the Limited Liability Company may be entrusted either to one or various Directors, who may act jointly or separately as set out in the Articles of Association. Should management be entrusted to more than two persons, either individuals or legal entities, a Board of Directors may be formed with a minimum of three and a maximum of 12 directors. It is not necessary to be a member in order to be a Director, nor is it, in broad terms, necessary to be a resident in Spain or of Spanish nationality.

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

i) Mergers and divisions.
The rules on mergers and divisions that apply to companies limited by shares are also applicable to limited liability companies.

j) Separation and exclusion of partners.
The law envisages different circumstances under which the partners of a limited liability company may withdraw from the company or may be requested to leave it.

(22) Article 239 of the Restated Text.
(23) Article 240 of the Restated Text.
(24) Article 243 of the Restated Text.
(25) Article 252 of the Restated Text.
(26) Title I of Law 29/1991 of 16 December (published on 17 December) which incorporated into the Spanish law the provisions of the EC Council's Merger Directive 90/434/EEC of 23 July 1990.
(27) Articles 16 and 4.2 Law 29/1991.
(28) Articles 7 and 9 Law 29/1991.
(29) Article 41 of the Law 2/1995, of March 23, on Limited Liability Companies.

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".