1
September 2010
CAPITAL COMPANIES LAW
The consolidating text of the Capital Companies Law, approved by
Royal Legislative Decree 1/2010 of 2 July (Ley de Sociedades de
Capital, “LSC”) comes into force today 1 September 2010,
except for the prohibition of the clauses in the listed companies’
bylaws that limit the vote in said companies, which will not come into
force until 1 July 2011. The LSC repeals and replaces, since its coming
into force, the laws applicable to date to public limited companies (“SAs”),
limited share partnerships and limited liability companies (“SLs”).
It also includes the framework for listed companies, previously
contained in title X of the Securities Market Law.
The purpose of the LSC is the regularisation, clarification and
harmonisation of the abovementioned legal texts. Although a
consolidating text, the following novelties, amongst others, are worth
highlighting:
1. Contributions. Stakes and shares. Debt
(i) The minimum capital required for SAs and SLs is rounded down to
€60,000 and €3,000, respectively.
(ii) Unpaid capital is referred to as “pending disbursements or
contributions” (arts. 81 and following).
(iii) In SLs, the legitimising effect of the partners registry book
is expressly stated (art. 104) and the bylaws are prohibited from
vesting on the company’s auditor the assessment of the stakes to be
transferred (art. 107).
(iv) With regard to indirect treasury shares or stakes, the
regulation applicable to SLs, establishing that the framework of
treasury shares or stakes will be that of the subsidiary company
acquiring the shares or stakes from the parent company, now also applies
to SAs (arts. 134 and following).
(v) Creditors of issuances of bonds seem to have preference over
creditors of subsequent issuances, but not over other creditors in the
insolvency proceedings (art. 410). This provision adds uncertainty to
the existing issuances and, should it prevail, could lead to an increase
in the cost of new issuances.

2. Corporate bodies
(i) The regulations on both judicial calls and the special cases when
general partners meetings of SLs may be called now also apply to SAs (arts.
169 and following). Moreover, an SA may call and hold general
shareholders meetings in a location other than the municipality where
the corporate address is located, provided that the company’s bylaws
establish so (art. 175).
(ii) The provisions applicable to SAs concerning directors’
attendance at general shareholders meetings, revocation of proxy and
extension of meetings now also apply to SLs.
(iii) The duties of loyalty (refraining from voting in the event of a
conflict of interest) of SA directors expressly apply to SL directors.
References to the duties of fidelity are removed (art. 225 and following).
(iv) The provision applicable to SLs regarding directors’ prohibition
to undertake, on their own behalf or on behalf of another, the same,
similar or complementary activities to those set out in the corporate
purpose, unless expressly approved by the company, also applies to SA
directors (art. 230). Nevertheless, this provision is not suitably
consistent with the removal procedure, which continues to be that
established in the former art. 132.2 LSA.
(v) Conflict of interest situations must be explained in the annual
report (without prejudice to the obligation of listed companies to
report these situations in the Corporate Governance Annual Report).
Likewise, the LSC specifies that the information to be provided by
directors regarding their stake in other companies which carry out the
same, similar or complementary activities also includes indirect stakes
or stakes held through related persons.

3. Amendment of bylaws
(i) The report of SA directors regarding a capital increase by means
of non-monetary contributions must include a detailed description of the
assessment of the contributions (art. 300).
(ii) Balance sheet for reductions (art. 323): the term between the
date of the balance sheet and the date of the resolution approving the
capital reduction may not exceed 6 months. This requirement applicable
to SLs now also applies to SAs.
(iii) Certain provisions applicable to SAs regarding, amongst others,
the right to information (art. 287), audited balance sheets for
increases with reserves (art. 303), reductions to increase legal or
voluntary reserves (art. 317) or restrictions on the distribution of
dividends after capital reductions (art. 326) now also apply to SLs.

4. Withdrawal and removal
(i) In addition to the legal causes of withdrawal (which now
include the extension of the company’s term and its revival), other
causes may be provided in the bylaws, which is a novelty for SAs (art.
347).
(ii) The bylaws of an SA may now foresee the removal of a shareholder
when he/she involuntary breaches his/her ancillary obligations (art.
89). However, the reasons for not applying the sanction in the event of
voluntary breaches and the fact that it is not consistent with the
removal framework for SLs (arts. 350 and following) are surprising.

5. Winding up and liquidation
The winding up and liquidation framework applicable to SLs (arts.
360 and following) now also applies to SAs with regard to: (i) the need
to draft a complete report on the liquidation transactions and a
proposal for the division of the remaining assets, (ii) the term to
challenge the resolution approving the liquidation and (iii) the
framework applicable to the assets and liabilities emerging after
extinction.

6. Listed companies
(i) The framework applicable to the preferred dividend of preference
shares issued by listed companies is now that for non-voting shares
issued by non-listed companies. Thus, the existing flexibility when
conferring privileges is no longer present for no apparent reason (art.
499).
(ii) The need for listed companies to make available on their
websites an electronic shareholders’ forum prior to holding any general
shareholders meeting is reiterated.
(iii) The fourth additional provision of the LSA -on the need for the
general shareholders meeting to approve the remuneration systems
consisting of shares or option rights over shares or referenced to the
value of the shares, addressed to general managers and similar officers
in listed companies- is removed.
