Legal Considerations for Company Formation and Transformation: A Comprehensive Guide
Assumption 4
Miguel Angel and Juan Carlos have formed a Limited Liability Company (SL) with a capital of 58,000C, divided into shares distributed equally between them. The company operates a printing press and, after three successful years, decides to increase its share capital to 80,000G. This expansion is also distributed equally between the two partners.
After the first expansion, both partners decide to bring in a third party who contributes only their work as an industrial partner. A few months later, this third partner challenges the social agreement that allowed the first increase, arguing that the capital should have been divided into shares rather than actions and that the company should have been structured as an SA (Sociedad Anónima) rather than an SL.
Questions:
1. Were there defects in the constitution of the SL?
Yes, there were defects in the constitution of the SL. It is incorrect to refer to the shares in the capital of an SL as “actions,” as this is expressly forbidden by Article 5.2 of the Companies Act with Limited Liability. In an SL, the capital must be divided into shares (Article 1, Law 2/1995 of March 23).
2. Is it possible to switch directly from a Limited Liability Company?
Yes, it is possible to directly convert one type of limited liability company to any other type of society. However, this transformation requires a processing agreement agreed upon by the General Meeting, a public deed, and registration processing in the commercial register.
3. What requirements must the Public Deed of Constitution of SA contain?
The deed of incorporation of an SA (Article 8 of the LSA) must contain the following information:
– The identity of the partner or partners (whether physical or legal person) – The desire to establish a corporation – The contributions that each partner makes, indicating the title and the number of shares allocated in payment – The total or approximate amount of the cost of formation, both already satisfied and merely provided until the society is constituted – The statutes governing the functioning of society – The names and ages of the persons responsible initially for the administration and social attitudes, whether they are natural persons or their name if they are legal persons. In both cases, their nationality and residence should be stated – The statutory auditors of the company
4. Is the third partner entitled to challenge the agreement on expansion of social capital?
Yes, the third partner is entitled to challenge the agreement on expansion of social capital because the first agreement was void due to the incorrect use of the term “actions” instead of “shares.” Until the correction of this defect, the company functions as an irregular society. If the defect is not remedied, the company would remain irregular after the capital increase agreement.
5. What happens in those cases in which the increase or decrease social capital entail a change of a company?
When a capital increase or decrease entails a change of a company, the statutes must be reformed because the amount of share capital must necessarily appear in them. Therefore, any alteration in the amount of capital necessarily involves statutory reform along the lines laid down in Article 71 of the LSRL.
6. What conditions would be required for this transformation?
The requirements for transformation of an SL into an SA (Article 58 of the LSRL) are as follows:
– Transformation Agreement – The transformation of society must be approved by the General Meeting, with the requirements and formalities laid down for amending the bylaws. – The General Meeting shall approve the balance of society, closed the previous day of the agreement and statements required by law for the constitution of society whose form is adopted. – The agreement may not modify the participation of social partners in the exchange of capital shares. If shares disappear, the partners have the right to their assigned quotas or shares allocated to them in proportion to the shares that each have in the society that becomes.
– Public Deed of Processing (Article 89) – The transformation deed must contain the particulars required by the Act for the incorporation of the company whose shape is adopted and the list of shareholders who have exercised the right of separation and the capital they represent. – If the company resulting from the transformation is anonymous or limited by shares, the report of the independent experts on non-monetary assets will be introduced in writing and the same number of shares corresponding to each of the shares will be indicated.
– Registration of Transformation – The public-processing of the limited liability company will be presented for registration in the Commercial Register, together with the balance of the company closed the day before the date of settlement processing and bottom closed the day before the the deed. – When processed into a limited company, only the first of the accompanying balance sheets indicated. – Without prejudice to the effects attributed to the required publication in the Official Gazette of the Commercial Register, the effectiveness of the processing shall be subject to the registration of the deed in the commercial register.