Corporate Legal Compliance: Capital, Governance, and Insolvency Rules
Analysis of Corporate Legal Requirements (C.E.A.)
1. Choosing the Joint Stock Company (S.A.)
The desire to raise capital easily, avoid restrictions on share transmission, and limit liability points exclusively to the legal form of a Joint Stock Company (S.A.).
This entity is regulated by the Corporate Enterprises Act (C.E.A.). Since the minimum capital requirement (€60,000) is also exceeded, this legal form is confirmed.
2. Validity of Non-Cash Social Contributions
The office, valued at €3,000,000, is a non-monetary asset contributed by Antonio.
According to Article 22 of the Corporate Enterprises Act (C.E.A.), contributions can be made in cash or in kind, confirming this as a valid non-cash social contribution.
3. Requirements for Valid Management Appointment
The proposed management appointment is not legally correct.
Although the individual was chosen to manage the company, their exclusion from the deed of incorporation or bylaws violates Articles 22 and 23 of the C.E.A.
While being an investor is not a legal requirement to govern, the correct legal procedure must be strictly followed for the appointment to be valid.
4. Minimum Capital Payment at Incorporation
Yes, the company can be legally constituted.
According to Article 78 of the C.E.A., in Joint Stock Companies, only 25% of the subscribed capital must be paid up at the time of incorporation. Julian’s plan complies with this minimum requirement.
5. Calculating Mandatory Legal Reserves
The required amount is €1,200,000.
The law mandates setting aside 10% of annual profits until legal reserves reach 20% of the share capital.
Calculation:
- Share Capital: €6,000,000
- Required Reserve Percentage: 20%
- 20% of €6,000,000 = €1,200,000
This figure represents the legal maximum required for mandatory reserves.
6. Validity of General Meeting Location
The meeting held in Madrid is not valid under the law.
According to Article 175 of the C.E.A., General Meetings must take place at the company’s registered office unless the bylaws explicitly permit an alternative location. Since there is no mention of such permission, the meeting location violates the legal requirement.
7. Limits on Capital Increases
The General Meeting (GM) may propose any amount.
As established in Articles 196-197 of the C.E.A., there is no fixed legal maximum limit for capital increases. The GM may approve any increase it considers appropriate, provided all procedural and statutory requirements are met.
8. Restoring Equity Balance
The required action is to reduce the capital to €5,000,000 or less.
If equity falls below 50% of the share capital, the company is legally obligated to restore the balance. In this case, equity (€5M) is less than half of the capital (€9M).
The business must either reduce capital or dissolve. Reducing the capital to €5,000,000 effectively solves the imbalance and restores compliance.
9. Choosing an Economic Interest Grouping (EIG)
The best option for collaboration without merging or creating a joint venture with shared ownership is to create an Economic Interest Grouping (EIG).
The applicable legislation is Act 12/1991 on Economic Interest Groupings, combined with the Code of Commerce. This structure allows the three companies to cooperate on a specific project (e.g., presenting new products) while maintaining their legal independence.
10. Distinguishing Insolvency Composition Proposals
The case involves the proposal of composition and the final composition, but not the advanced proposal.
Key differences:
- Advanced Proposal of Composition
- Presented before the declaration of insolvency to reach an agreement with creditors preemptively.
- Proposal of Composition
- Made after the insolvency process begins and negotiated under court supervision.
- Final Composition
- The definitive agreement approved by the Court following the review of the insolvency administrator’s report.
Since the company presented an insolvency petition, held a General Meeting, had an administrator appointed by the Court, and approved a final resolution, the process included the standard proposal and final composition.