Concept of Law and Functions

Concept of Law and Functions

• Law consists of the rules and regulations that govern behavior, maintain order, protect individual rights, and ensure justice
• Governing bodies create and enforce these rules and regulations
• Resolving disputes and governing contracts, property, human rights, and corporate governance are all provided for within the legal framework

Key Functions of Law

• Maintains order by establishing guidelines for acceptable behavior and consequences for violations
• Resolves disputes through structured processes like courts, arbitration, and mediation
• Protects individual rights and freedoms, including freedom of speech and protection from discrimination
• Ensures justice and equality by treating individuals equally and preventing discrimination
• Regulates social and economic activities to ensure fairness, stability, and trust in the market
• Promotes social welfare by addressing issues related to public health, education, housing, and social services
• Provides a framework for governance by establishing the structure and function of government and public institutions
• Deters crime by ensuring those who break the law are held accountable through punishments like fines and imprisonment
• Provides a basis for social change through recognizing new rights, and adjusting to technological advancements

General Framework of Commercial Procurement

• Commercial procurement is defined as contracts where businesses obtain goods, services, or works from suppliers under private or public law
• Includes private procurement (between companies) and public procurement (by government entities)

Legal Framework for Private Procurement (B2B)

• Primarily regulated by the Spanish Commercial Code (Código de Comercio, 1885), which provides general principles of commercial contracts
• Spanish Civil Code (Código Civil, 1889) – Offers supplementary rules on obligations and contract formation
• Sector-Specific Laws, such as those governing financial services, transport, or construction contracts, may also be applicable

Legal Framework for Public Procurement (Government Contracting)

• The Spanish Public Sector Contracts Law (LCSP 9/2017) governs procurement by public administrations
• EU Directives on Public Procurement (2014/24/EU, 2014/25/EU, 2014/23/EU) establish transparency, competition, and equal treatment principles
• The WTO Government Procurement Agreement (GPA) applies to international procurement in trade agreements

Key Principles of Commercial Procurement

• Enshrines freedom of Contract, meaning parties can negotiate terms within legal limits
• Contracts must be executed in good faith, as per Article 1258 CC
• Transparency and competition are especially relevant in public procurement
• Breach of contract can result in damages, penalties, or contract termination because of performance and liability

Common Types of Commercial Procurement Contracts

• Sales Contracts are purchases of goods and regulated under the Commercial Code
• Supply Contracts entail regular provision of materials or services
• Service Contracts include agreements for consultancy, maintenance, and IT services
• Construction Contracts involve works and infrastructure projects, often under public procurement rules
• Franchise and Distribution Contracts regulate market expansion and commercial networks

Enforcement and Dispute Resolution

• Judicial Remedies: Courts resolve disputes based on contract law
• Administrative Review: Specialized bodies oversee contract awards and execution (for public procurement)

Main Commercial Contracts

• Sale of Goods Contracts
  • Purpose: Governs the sale and purchase of goods
  • Key Regulations:
    • United Nations Convention on Contracts for the International Sale of Goods(CISG) (for international sales)
    • Spain: Commercial Code (Código de Comercio) & Civil Code (Código Civil) apply
• Distribution Agreements
  • Purpose: One party (supplier) provides goods to another (distributor) for resale
  • Types:
    • Exclusive distribution, in which there is only one distributor in a region
    • Selective distribution, in which distributors are chosen based on criteria
• Agency Contracts
  • Purpose: An agent negotiates or concludes contracts on behalf of a principal
  • Key Laws:
    • Spain: Law 12/1992 on Agency Contracts (Ley del Contrato de Agencia)
    • EU Directive 86/653/EEC applies to agency contracts across the EU
• Franchise Agreements
  • Purpose: A franchisor allows a franchisee to use its brand, know-how, and business model
  • Key Laws
    • Spain: Retail Trade Regulation Act (Ley de Ordenación del Comercio Minorista, 1996)
    • Disclosure obligations require the franchisor to provide key information before signing
• Lease Agreements
  • Purpose: A business rents property (office, retail space, warehouse) from a landlord
  • Key Law in Spain: Urban Leasing Law (Ley de Arrendamientos Urbanos, LAU 29/1994)
• Service Contracts
  • Purpose: A company provides services to another entity (consulting, IT, logistics, etc.)
  • Key Law: Governed by general contract law in the Civil Code
• Share Purchase Agreements (SPA) & Asset Purchase Agreements (APA)
  • Purpose: Used in mergers & acquisitions (M&A) to buy a company’s shares or assets
  • Key Elements: Purchase price, warranties, indemnities, closing conditions
• Licensing Agreements
  • Purpose: Grants rights to use patents, trademarks, or copyrights
  • Key Law: Spanish Intellectual Property Law & Patent Law 24/2015 regulates licensing

Economic Significance of Commercial Contracts

• Commercial contracts impact business activity and the overall economy
• They facilitate business economic growth, stability, and efficiency
• Enables the buying and selling of goods and service, establishing legal certainty
• By clearly stating investors rights and obligations, contracts provide protection.
• Allow companies to expand, enter new markets, and create jobs to encourage competition and growth
• Contracts define responsibilities in case of non-performance, economic fluctuations, or unforeseen events to regulate risk allocation
• Leasing and factoring agreements give businesses access to capital without requiring immediate payments, enhancing financing and credit
• Commercial contracts regulate foreign trade and cross-border investments in an interconnected market, influencing global markets

Competition Law

• LCD: Ley de Competencia Desleal, LDC: Ley de Derecho de Competencia
• Good faith is a fundamental principle in contractual relations (Article 57 of the Spanish Commercial Code and Article 1258 of the Civil Code)
• Fair competition applies to market behavior and interactions between competitors
• Spain adheres to international standards, such as Article 10 bis of the Paris Convention, defining unfair competition as conduct contrary to honest commercial practices
• The LCD differs from Competition Defense Law (LDC)
• The LDC protects market efficiency with administrative ruling and sanctions government antitrust violations
• The LCD protects businesses individually against unfair actions from competitors, allowing them to seek civil remedies

Legal Framework in Spain for Competition Law

• The LCD is the primary law governing unfair competition in Spain
• Complemented by Article 10 bis of the Paris Convention
• The LCD’s general structure includes:
  • A general clause prohibiting acts against good faith
  • A list of specific unfair competition acts (e.g., misleading advertising, denigration, imitation, etc.)
• Spanish law adapts to EU legislation

Types of Unfair Competition Conduct

• Includes acts taking advantages of competitors and imitating and exploiting reputation

• Acts exploiting competitors reputation can include practices like:

  • Deception (Article 5 LCD) – Misleading claims that induce consumers into error
  • Confusion (Article 6 LCD) – Creating market confusion by imitating a competitor’s branding, store design, or slogans
  • Omissions (Article 7 LCD) – Failing to provide key product information or presenting it in an unclear manne
  • Aggressive practices (Article 8 LCD) – Using harassment, coercion, or undue influence to manipulate consumer behavior

• Imitation is legal, unless:

• It infringes on rights or laws like patents

• Creates consumer confusion

• Unfairly exploits another's efforts

• Exploiting a competitor’s reputation is illegal as well

• Consists of denigration, comparative advertising and spreading misinformation

• Using relationships with suppliers and taking advantage of lack of alternatives

• Imposing unfair terms for commercial relationships without 6 month written notice

• Threatening to break business ties to pressure better deals for consumers

• Pricing and market manipulation include:

  • Predatory pricing (dumping) – Selling below cost to eliminate competitors is legal unless intended to harm competition
  • Discriminatory pricing (Article 16.1 LCD) – Offering different prices without justification

• Misuse of trade secrets (Article 13 LCD) – Includes industrial espionage and unauthorized disclosure of business strategies

• Breaking legal regulations to gain an advantage (Article 15 LCD) – E.g., avoiding labor laws to reduce costs

• Inducing employees or customers to break contracts (Article 14 LCD)

Unfair Consumer Practices

• Misleading promotions (e.g. “bait and switch”)
• False endorsements and pyramid schemes
• Coercive selling tactics and pressure sales (e.g., targeting vulnerable groups like minors)

Actions against Unfair Competition

• Victims of unfair competition have several legal remedies (Article 32 LCD), including:
  • Declaratory judgment for the act unfair
  • An Injunction for courts businesses to stop unfair practices
  • Requiring restitution
  • Correcting misleading information
  • Providing damages for harm suffered
  • Preventing unjust enrichment

Statute of Limitations for Unfair Competition

• One year from awareness of the act and responsible party
• Three years from the end of the unfair practice

Illegal Advertising

• Excessive or deceptive advertising can be illegal
• The General Advertising Law (LGP) defines illegal advertising as advertising that:
  • Violates dignity or fundamental rights
  • Targets minors and exploits their inexperience
  • Uses subliminal advertising
  • Is false or misleading
  • Deceptively omits key product information
  • Uses comparative advertising that misleads consumers

Regulatory Bodies

• CNMC (Spanish competition authority) enforces advertising laws
• Autocontrol provides voluntary compliance mechanisms

Intellectual Property: Legal Framework

• Trademark Law 17/2001 is in line with EU Directive 2015/2436, designed to standardize registration and protection across the EU
• Protection is granted at national, European, and international levels:
  • In Spain, trademarks are registered with the Spanish Patent and Trademark Office (OEPM)
  • EU Trademark (EUTM) offer protections for all EU states
  • International treaties (Paris Convention (1883) and Madrid Agreement (1891)) enable multi-country trademark registration

Definition and Functions of Trademarks

• trademarks are a sign distinguishing a company’s product/services from competitors
• Can be distinctive words, images, shapes, or sounds
• To indicate origin, ensure quality, build reputation, and drive sales, trademarks serve to:
• Identify the company
• Build consumer confidence
• Increase customer loyalty
• Attract consumers

Registration and Rights for Trademarks

• Right to a trademark is granted with official registration, following a:
  • Formal examination to check the application form
  • Substantive examination to ensure no conflicts with existing trademarks
• 42 product/service categories are classified under the Nice Agreement (1957)
• Once registered, trademarks are valid for 10 years, and renewable.

Trademark Infringement and Enforcement

• Registered trademark grants exclusive use rights
• Owners can prohibit third-party use of identical or confusingly similar marks
• Once a product is sold in the EU, the trademark holder cannot control its resale because of the “Exhaustion of Trademark Rights” principle

Remedies for Trademark Infringement:

• Ceasing the infringing activity
• Financial compensation
• Destruction of counterfeit products
• Publication of court rulings against infringers

Tradenames

• Tradenames identify a business entity, differing from trademarks
• Trademark identifies individual services or products
• Unique, non-deceptive, and consistently used tradenames:
  • Identify a company’s activities in the market
  • Exclusive rights are granted through registration with the OEPM
  • Trade names can be transferred independently from the business

Internet Domain Names

• Domain names (e.g., Nike.com) function as digital trademarks
• Registration is overseen by ICANN, with national authorities managing country-specific domains (e.g., “.es” in Spain)
• Disputes (e.g., cybersquatting) are handled through arbitration systems like UDRP
• Spain’s National Domain Name Plan (PNND) regulated “.es” domains, but has faced operational challenges

Patents

• Patents are an exclusive right granted to an inventor for a new product, process, or technical solution
• Patents enable commercial exploitation for 20 years when innovation is disclosed publicly
• Governed Nationally by Spanish Patent Law 24/2015, the Munich Convention (1973), and the TRIPS Agreement (WTO, 1994)
• Patents are valid in designated countries if under the Munich Convention (1973)
• Paris Convention (1883) ensures priority rights for patent applications across multiple countries
• Patent Cooperation Treaty (PCT, 1970) facilitates international patent applications
• TRIPS Agreement (WTO, 1994) sets global patent protection standards

Patentability Requirements

• To have a patent, an invention must be:
  • Novel, in that it is not part of existing public knowledge
  • Inventive, in that is it not an obvious improvement for a skilled person
  • Industrially applicable, or usable in any industry
• Scientific theories, mathematical methods, and software cannot be patented, while biotechnological inventions can be patented

Exclusive Rights with Patents

• Patent owner can block competitors from using, manufacturing, or selling the invention
• Use for research, a prior exemption, and the "Exhaustion principle” offer exceptions to this
• Once a product is legally sold in the EU, the owner cannot control further resale because of the “Exhaustion principle”

Enforcement Actions for Patents

• Civil actions can:

  • Stop infringement
  • Claim damages based on lost profits/infringers gains
  • Seize counterfeit goods

• Criminal penalties apply to industrial property infringement under Article 274 of the Spanish Penal Code

• If a patent has gone unused for 3-4 years, 3rd parties can request a royalties set by the Spanish Patent Office (OEPM)

Utility Models (Mini Patents)

• Protect minor technical improvements to existing products
• Valid for 10 years

Industrial Property

• Requirements for novelty are less stringent than with patents, but they must still be new in Spain
• Industrial property includes innovations and distinctive signs (trademarks) owned by businesses
• Differs from intellectual property because it does not cover artistic, literary, and software creations

Protections Under Law

• Patents grant temporary exclusive rights to investors
• Trademarks provide indefinite rights, ensure protection from consumer misrepresentation
• Tension exists as competition law opposes industrial property grants
• Trademark protection facilitates consumer decisions and brand recognition

Industrial Design Protection: Three Pronged Approachs

• Protect appearance of products

• Spanish industrial design law (2003) provides national registration

• EU community design regulation (2001) covers all EU countries

• Hague agreement (1934) provides international protection

• Industrial design must be visible, have distinctive character, and not be dictated by function

Public Limited Company (SA)

• Has a minimum share capital of €60,000, divided into shares
• More flexible for free transfer of shares and investor exit
• Economic significance is for it’s ability to attract capital
• Shareholder liability is limited to their individual capital contribution
• Managed by an executive board or director, with a general meeting of shareholders

Limited Liability Company (SL)

• Has a minimum share capital of €3,000, divided into participations
• Ideal for small and medium-sized enterprises (SMEs)
• There is restricted transfer of share participation
• Shareholders' liability is limited to their share capital contribution
• Management is by a shareholders' meeting and optionally a sole director/ board of directors

Entrepreneurship: Two Structures

• Individual entrepreneurs (Empresario individual) are mostly for small retail business
• A Corporate entity (Personas jurídicas – Empresario social)
  • Is possible for entities that require for large capital investment through multiple investors
  • Compliance with legal requirements for businesses like insurance and baking
  • Limited liability, offering corporation protection to owners
  • Tax advantages like a 35% rate as compared to personal income tax (which exceeds 48%)

Key Features of a Corporation

• Has distinct legal rights to it's owners
• Offers limited liability
• Has the ability to own assets and sign contracts
• Enjoys a distinct legal name

Regulations on Capital Companies

• The regulations on capital companies focus on contractual aspects, governance, and their role in the economy
• Frameworks are provided by the Código de Comercio (arts. 116-124) and Código Civil (arts. 1665-1708), but are outdated
• The primary modern ruling is the Ley de Sociedades de Capital (LSC)
• Key Elements include:
  • Agreements where people pool resources to seek profit is a company contract
  • Generating wealth for share holders and addressing stakeholders is an economic purpose
  • Addressing administrative and shareholder interests is corperate governance
  • Evolving definition of how a company allows members to share social responsibility
  • Following good governance

Concept of Company Contract

• A Mercantile company contract must have a corporate structure and is regulated in different legal texts:
  • Commercial Code (C.Com) Articles 116-124
  • Civil Code (C.C.) Articles 1665-1708
• Key characteristics include the contribution of capital/labor, business interest among partners, and the purpose of profit generation
• Key legal distinctions exist, with must assume a specific legal form (SA, SL, etc.), such as Mutual Insurance Companies or Cooperatives engaging in commercial activates
• 2010 LSC Reform: Ley de Sociedades de Capital (LSC) established Sociedades Anónimas (SA), Sociedades Limitadas (SL), & Sociedades Comanditarias por Acciones (SCA) as mercantile regardless of activities
• Sociedad de Responsabilidad Limitada (SL) is ideal For small/medium enterprises with limited liability
• Sociedad Anónima (SA) Is used for large businesses with free transfer of shares
• Sociedad Comanditaria por Acciones (SCA) is less common

Key Features of Capital Companies

• Legal personality means it is separate from its owners (art. 33 LSC)
• Shareholders are not personally liable for more than contributions, enshrining the fact of limited liability
• Structuring includes shares or participations
• Managed by administrators and general assembly of partners
• In SA 60,000€ is the minimum capital with at least 25% paid before corporation
• In SL: 100% of the 3,000 euros must be paid at the time of subscription

Steps to Corporate a Capital Company

• A deed formalized the contract
• Registration grants legal rights
• Defining by laws define the operating standards of the entity

Denomination, Nationality, and Domicile Requirements

• The denomination (company names) must be unique and follow the same naming conventions as other existing entities
• Names must include legal language (S.L. or S.A.) with an option for central registry requests
• Nationality is determined by where the laws are that created the entity
• Domicile must exist with a company registered based in Spain with associated tax obligations
• Shareholders can add these details in by laws if approved.
• One can create companies:
  • One-person incorporation is allowed for both SA and SL
  • The result of all shares being brought by one person If lack of registration continues for six months, the original liability shields are dissolved

Conditions Permitting the Piercing of the Corporate Veil

• Commingled assets
• Fraudulent manipulation
• Abuse of corporate laws seeking to evade debts

Incorporation of Capital Companies

• The creation of a legally recognized business entity.
• Key Incorporation is based on:
• A mutual agreement between company partners
• A set of company bylaws determining structure
• Sharing the capital amongst shareholders

Process for Incorporation

• Formalizing the company formation
• Registering the company based on registry laws
• A tax number has to be assigned when incorporating and operating within a market
• Once incorporated, a company can operate freely within the market

Incorporation Requirements

• Mutual agreement over form
• Bylaw structure
• Necessary capital of: €60,000 for SA, and €3,000 for SL
• Must be notarized
• Filing registration
• Paying shareholder contributions

Corporate Governance Structure

• Defines appointment of directors or managers and the company's governance rules in the articles (227LSC)
• Irregular societies, while in operation, lack legal backing, resulting in joint debts and less protection in court

Irregular Company Structure

• Results from not filing the proper information
• Lacking legal power or standing
• Personally liability for the company’s debts and responsibilities

Rectification

• Society must file the required formalities
• There is no full capacity
• There will be partner liability
• Companies often make illegal entities while running the risks of:
• Failure to meet legal standings
• Illicit activities
• Defects in the process
• The legal consequences of actions like these include:
• Dissolution and liquidation
• Impacts on 3rd parities
• Liability of founders/administrators
• Requires judicial approval

SDGs & The Companies

There are standards in sustainability, corporate practice standards

• SDG 8 on Economy:
  • Promotes economic growing and innovation
  • Focuses on full employment in equal opportunities
• SDG 9 on Infrastructure -Promotes innovations and efficiency
  • Boosts scientist research and innovation
• SDG 12 on Production/Consumption
• Responsible usages and waste of natural resouces
• Promotes/Encourage sustainable practices in capital companies
• SDG 16 on Strong Institutions
• Reduces corruption and bribery
• Effective models of transparency in institutions
• SDG 17 on Goal Partners
  • Promote global partnerships with clear development
  • Stronger public and private civil entities

Consideration for Social Contributions

• LSC that valuable contributions be accessible like assets. Not like services.
• Limited vs Shared Liabilities
• Shares are made of by capital, used to measure voting rights