Part 2 of 17

2.1 Companies Limited by Shares (Sociedades Anonimas).
According to the Restated Text the main features of this type of company are the following:

a) Legal personality.
A company limited by shares is formed by means of a notarial instrument or public deed ("escritura"), which contains the memorandum and articles of association, entered into before a Spanish notary (State appointed lawyer who certifies all types of contracts). The "escritura" must be recorded at the Commercial Register having jurisdiction over the place where the company has its registered office; the "escritura" must be filed at the Commercial Register within two months following the date of its execution, otherwise the founders and directors shall be liable for any damage caused to the company. The company limited by shares shall only acquire a separate legal personality upon registration. Prior to registration the company shall be liable for those acts and contracts that are essential for its registration, for those carried out by the directors within the scope of the powers given to them for such interim period or for those carried out by special attorneys; otherwise the liability shall remain with those that signed the relevant contracts; once the company has been registered it shall be liable for the acts and contracts mentioned above and for those that are accepted by the company within three months following registration(6).

b) Liability.
The liability of the shareholders is limited to the value of the shares they agree to subscribe for. While this is the general rule, the technique leading to pierce the corporate veil is not unknown and may be applied under certain circumstances as elaborated by case law.

c) Capital and shares of stock.
The minimum capital required to set up a company limited by shares in Spain is 10,000,000 pesetas(7). This requirement must be met by any company created after the date of publication of Law 19/1989 (27 July 1989). Existing companies at that date were compelled to increase their capital up to at least that amount before 30 June 1992 if they wished to keep that corporate form. The capital must be fully subscribed for and at least 25% of each share paid up. The balance must be paid in the form and within the period of time set forth in the articles of association or agreed by the directors(8). Contributions may be either in cash or in kind, including any rights that may have an economic value; personal work or services are not acceptable as contributions. Contributions in kind require a special report (including an evaluation) by independent experts. Evidence of cash contributions must be attached to the "escritura", i.e., the memorandum and articles of association(9). The company's capital will be divided into shares which in turn may be evidenced by either certificates or book entry (the latter namely for Stock Exchange transactions); certificates may be either to bearer or registered although the registered form is compulsory in certain cases. Different classes and series of shares are permitted as well as the issue of shares for a premium although any premium must be paid in full upon subscription. Restrictions on the transferability of the shares are also allowed within certain limits(10). Non-voting stock is also allowed for a nominal amount not exceeding 50% of the paid up capital and it is to be remunerated with a minimum 5% preferential annual dividend(11). There are restrictions on companies owning their own stock and having "interlocking shareholdings". These may not exceed 10% and any excess should be reduced to the 10% limit via the reduction of the capital of the company(ies) concerned in the required proportions(12). The foregoing rules on "interlocking shareholdings" do not apply to those holdings between a subsidiary and the "dominant" (parent) company(13). As a general rule a company "dominates" another where it owns the majority of the voting rights or may exert a decisive influence on the company's affairs(14).

d) Shareholders.
These rules apply to closely held companies. There are more extensive rules for companies wishing to offer their shares to the public. Following the recent amendment of the company law, beginning on June 1st, 1995, any company limited by shares may have one or more shareholders. Until that day, they must have a minimum of three shareholders. In practice, however, companies have often operated after incorporation with less or even just one shareholder by the simple means of transfers of shares among the shareholders. This has not been so far a legal cause for dissolution and liquidation or for imposing unlimited liability on the single shareholder, even though there exists case law concerning single member companies whose single shareholder has been found under certain circumstances personally liable for the company's debts. But beginning on June 1st, 1995, pre-existing single member companies must disclose such fact to the Commercial Register before January 1st, 1996. Failure to effect such a disclosure will result in the single member personal, unlimited and joint and several liability for the company's debts incurred during the period of time in which he was the single member. The single member is not liable for those debts incurred after the position is disclosed and recorded at the Commercial Register. Disclosure is also required if a company turns to be a single member company. Failure to effect disclosure within six months of having acquired such condition, will entail the consequences outlined above.

Where a company is founded by more than one person, the absence of at least two real (not nominees) founding shareholders may give cause of action to nullify the company's incorporation act(15).

The shareholders may be either individuals or legal entities, Spanish or foreign, the latter being subject to the limits and requirements established by the foreign investments legislation (see below).

The company's affairs are conducted by the shareholders in meeting. The daily management of the company is carried out by the directors (there are several forms: Board of Directors, single Director, etc., as seen below).

Meetings of shareholders may be ordinary or special (extraordinary). The ordinary meeting shall be held annually within six months following the end of the company's accounting year in order to examine the company's management, approve the annual management report and accounts (the latter include a balance sheet, a profit and loss account and a Directors' report) and resolve about the application of the year's profits. As a general rule, at least 15 days notice of the meetings shall be given on the Commercial Register Official Bulletin and one newspaper of wide circulation of the county where the company has its registered office. No notice is required if all the shareholders are present and resolve to hold the meeting.

Unless the articles of association of the company require higher quorums and majorities, for ordinary matters the attendance of shareholders representing at least 25% of the voting stock shall be required for the general meeting to proceed to business after being convened for the first time. If said quorum is not present the general meeting shall stand adjourned and the attendance of any part of the voting stock shall be sufficient for the general meeting to proceed to business after being convened for the second time. For special matters such as the issue of securities, the increase or reduction of the share capital, the transformation, merger or division of the company and generally the amendment of the articles of association and unless the articles of association of the company require higher quorums and majorities, the attendance of shareholders representing at least 50% of the voting stock shall be required for the general meeting to proceed to business after being convened for the first time. If said quorum is not present the general meeting shall stand adjourned and the attendance of 25% of the voting stock shall be required for the general meeting to proceed to business after being convened for the second time.

A simple majority shall be sufficient to pass resolutions. In the case of meetings transacting special matters and which are attended by shareholders representing less than 50% of the voting stock, a majority of at least two thirds of the voting stock attending the meeting shall be required.

The shareholders may be represented at shareholders' meetings by any other person even if such person is not a shareholder although the articles of association may impose limits to this right.

Where single member companies are concerned, all of the powers pertaining to the shareholders shall rest upon the single member whose decisions must be recorded in writing.

(6) Article 15 of the Restated Text.
(7) Article 4 of the Restated Text.
(8) Articles 12 and 42 of the Restated Text.
(9) Articles 36 through 41 of the Restated Text.
(10) Articles 47 and 63 of the Restated Text.
(11) Article 90 of the Restated Text.
(12) Articles 82 through 89 of the Restated Text.
(13) Article 85 of the Restated Text.
(14) Article 87 of the Restated Text and article 42 of the Code of Commerce as amended by Law 19/1989 and Law 2/1995 of March 23, on Limited Liability Companies.
(15) Article 34.1 d) of the Restated Text.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstance.
For futher information contact Mr. Jorge Angell, L. C. Rodrigo Abogados, Madrid (Spain) Fax:010 341 576 67191.