Can I transform my Limited Liability Company into an Public Limited Company

The regulation of limited and public limited companies (S.L. and S.A.) in Spain, is mentioned in the included in the Spanish Royal Legislative Decree 1/2010, of 2 July, which approves the revised text of the Capital Companies Act, however, it does not include the transformation procedure, as this legal figure is one of the so-called structural modifications, and is now covered by Royal Decree-Law 5/2023, of 28 June (formerly Law 3/2009 of 3 April, on structural modifications of commercial companies), and will affect all transformations that have been carried out after the entry into force of this Royal Decree. In the following, we will describe the most important requirements, advantages and procedure, as well as the most important deadlines to be taken into account.

The most basic requirements for a public limited company (S.A.):

  • In Spain, the share capital of the public limited company may not be less than sixty thousand euros (60.000€).

  • It can be set up with a several shareholders or just one (“Sociedad Anónima Unipersonal”).

  • A reinforced legal majority is required for its transformation, i.e. at least two thirds of the votes corresponding to the shares into which the share capital is divided, unless the bylaws have raised the quorum.

Advantages

  • Increase the capital or number of shareholders: less rigorous in the transferability of shares, as it is completely free.

  • Limitation of the liability of the shareholders, who are only liable for the company’s debts up to the limit of the capital contributed, so that their personal assets are not compromised.

Procedure

  1. Transformation project. The new Royal Decree introduces the requirement for the administrative body to draw up and sign a transformation project with the content applicable to any structural modification, which in turn contains two sections and several documents to attach, as detailed in article 20 of the new Royal Decree.

  1. Report of the independent expert, if applicable. Report by the independent expert designated by the Commercial Register, on the company’s non-cash assets, in accordance with the company’s balance sheet (closed six months before the date scheduled for the General Meeting). The report will not be necessary if all the assets are made up solely of cash (which is rather difficult), and this has been agreed by all the shareholders with voting rights in the company.

  1. Announcement – an announcement must be made to shareholders, creditors and employees’ representatives or, where there are no such representatives, to the employees themselves, that they may submit comments on the draft to the company not later than five working days before the date of the General Meeting.

  1. Report of the management body. The administrative body shall be required to inform the General Meeting, at which the transformation is submitted for approval, of any material change in assets or liabilities which has occurred between the date of the report in support of the transformation and the balance sheet made available to the members and the date of the meeting of the General Meeting. Nevertheless, the information referred to, need not be made available or sent if the resolution on transformation is adopted unanimously at a general meeting.

  1. Publicity, if and when applicable, and agreement of the Company. The transformation project must be posted on the website (or deposited with the Mercantile Register); and published in the BORME. However, it may be adopted without the need to publish or deposit the documents required by law, and without announcement when it is adopted by the company at a Universal Meeting and by unanimous agreement of all the shareholders with voting rights and, where appropriate, of those who, in accordance with the law or the articles of association, may legitimately exercise that right. In addition, the transformation resolution shall be adopted in accordance with the requirements and formalities laid down in the law of the company being converted, in this case S.A.. Furthermore, the resolution of the General Meeting must include approval of the balance sheet of the company submitted for the transformation, with any amendments that may be appropriate, and of the particulars required for the formation of the company of the type adopted. Furthermore, shareholders and holders of shares or non-voting equity securities shall have the right to dispose of their shares or holdings to the company or to such shareholders or third parties as the company may propose in return for appropriate cash compensation, as provided for the protection of shareholders in the ordinary provisions. Shareholders who, as a result of the conversion, would have to assume personal liability for the company’s debts and who have not voted in favour of the conversion resolution shall be automatically removed from the company if they do not duly adhere to it within one month from the date of its adoption if they have attended the shareholders’ meeting, or from the date of notification of the resolution if they have not attended the shareholders’ meeting. The valuation of the shares or holdings corresponding to shareholders who are separated shall be carried out in accordance with the provisions of the ordinary rules. The resolution once adopted must be published in the Official Gazette of the Commercial Register and on the website or, in the absence thereof, in one of the newspapers with the largest circulation in the provinces in which each of the companies has its registered office; it is not required when the resolution is communicated individually in writing or electronically to all the shareholders by a procedure that ensures receipt of the resolution at the address appearing in the company’s documentation. 

  2. Deed of transformation. With the general requirements of the S.A. into which it is transformed, highlighting, in addition to its new statutes (new name, minimum capital, shares and their regime, specific alternative of the administrative etc.).

  1. Registration in the Commercial Register. The effectiveness of the transformation shall be subject to the registration of the public deed in the Commercial Register.

Deadline to be taken into account:

  • One month before the General Meeting to be held to pass resolutions, the documentation referred to in points 1, 2 and 3 must be made available to the shareholders and workers.

  • The General Meeting must be convened at least one month in advance and after publication of the documentation referred to in points 1, 2 and 3, if applicable.

  • The commercial Registry can take up to generally 15 working days, to register the modifications.

Lastly, we would like to point out that just as it is possible to transform an SL into an SA, it is also possible to do the reverse, or any other type of commercial company: civil partnerships, partnerships, collective, “comanditarias”, as well as economic interest groupings and cooperatives.

Caution: not to be confused with cross-border transformation, an operation whereby a company incorporated under the law of one Member State (State of origin) changes its lex sociedatis and becomes subject to the law of another Member State (State of destination), transferring its registered office to the latter and retaining its legal personality, i.e. without being dissolved and liquidated in the former and incorporated ex novo in the latter.

Want to know more about the shareholder protection and the rest of the novelties in the new law on structural modifications of commercial companies)? Visit the following site: Novelties in the new regulation for structural modifications

 

 

 

Ana Karín Mengotti

Lawyer of the Legal Area at Devesa & Calvo Abogados

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