Sociedad Anónima (SA): Formation and Key Principles

Posted on Dec 13, 2024 in Law & Jurisprudence

Concept of Sociedad Anónima (SA)

The origin of the Sociedad Anónima (SA) is linked to companies founded in the seventeenth century for trade in the East and West Indies. The great geographical discoveries of earlier centuries opened new trade routes and created a favorable climate for mounting expeditions and commercial enterprises. Due to their size and large risks, these ventures could not be undertaken by traditional, quasi-family companies. Hence, the idea of building companies with capital divided into small, equal aliquots, denominated as shares, emerged as a means to facilitate the clustering of large capital needed to carry out these companies. This attracted private capital in small amounts, spreading the many risks of colonial trade among many individuals.

The concept of SA is implicit in Article 1 of the Corporations Law of December 22, 1989, which states that in the SA, capital is divided into shares and integrated by the contributions of members who are not personally liable for company debts. Therefore, an SA is characterized by:

  • Being a capitalist society in which the personal circumstances of members are not relevant, only the involvement that each has within the capital.
  • Being a company of shares in which the capital is necessarily divided into aliquots, called shares, which give the holder the status of Partner.
  • Being a limited liability company in which the member undertakes to contribute to the company the sum of the shares signed, responding to society’s failure to comply with that obligation, but without personal liability for company debts that the company may generate.

Company Name and Corporate Purpose

Company Name

An SA operates under a freely chosen name, which may be pure fantasy, adapted to the nature of the business, or consisting of a name or combination of names of some of the members. The law merely requires that the name necessarily includes the words “Sociedad Anónima” or “SA”. The law prohibits the adoption of a name identical to a pre-existing company. The Mercantile Registry Regulations impose certain prohibitions affecting the name of the companies, including the prohibition to include in the title words or phrases which are contrary to law, public order, or morality. It also prohibits official designations or misleading information.

Corporate Purpose

As for the corporate purpose, the founders of the SA may freely determine the activity or activities that are to integrate the social objects, always respecting the meaning of Article 1225 of the Civil Code. This article states that contractors can establish the covenants, terms, and conditions as they please, provided they are not contrary to law, morality, or public order. The scope or content of the objects initially set out in the statute is not definitive, nor immutable. At any time following the formation of the company, the General Board of Shareholders can substitute or make changes in the social order.

Social Capital Principles

Legal ordination of social capital is based on the following assumptions:

  1. Principle of Minimum Capital: The capital of an SA may not be less than 60,000 euros. Throughout the life of society, capital cannot be reduced below that level.
  2. Principle of Determination: Capital will be determined in the statute, stating the amount, the number of shares into which it is divided, the par value thereof, class, etc.
  3. Principle of Integrity: The capital will be fully subscribed in order to constitute the society. Full subscription implies that all actions are undertaken or underwritten by people with the ability to be bound.
  4. Principle of Minimum Payout: Capital, as well as being subscribed to, will be paid in a quarter of the nominal value of each of the shares. The minimum payout will affect all shares. The release is contributing members of society money or other property subject to property valuation. The contribution must be made to the property title so that it passes directly from the contributed equity partner to the particular assets of the company.
  5. Principle of Stability: The figure for fixed capital in the statutes cannot be altered, either upward or downward, if not through legal proceedings set for it, and modifying the statutory term concerned.

Formal Requirements for the Constitution of an SA

The formal requirements for the formation of a company are the deed and registration in the Commercial Register.

  • The public deed is the solemn and necessary act for the statutes, which is formed by the partnership agreement in the strict sense. This is the first legal act of a corporation’s founding. It is formed by the statutes, which are to govern the life and functioning of society.
  • With the entry in the Commercial Register, the SA will acquire legal personality. Before enrollment, there is no real person, and no SA.

The contents of the deed contract substantially include the following statements:

  1. Personal data of the grantor or grantors.
  2. Expression of their will to establish an SA.
  3. The cash, property, or rights that each partner contributes.
  4. The cost of constitution.
  5. Expression of anything which the partners who have founded the company see fit to establish.

The content of the statute is more complex and must necessarily include the following:

  1. The name of the company.
  2. The corporate purpose.
  3. The duration of the company.
  4. The date of commencement of business operations, which often coincides with the deed.
  5. The registered office.
  6. Social capital, expressed in the number of shares, their nominal value, etc.
  7. The administrative structure, establishing its system performance, number of administrators, etc.
  8. How to deliberate and make decisions collegially.
  9. The date of the financial year.