Corporate Company Incorporation

Incorporation of Corporate Companies

• The act in which original partners express their intent to create a company is the incorporation of a corporation
• This expression must be formalized in a public deed
• Even with the granting of a public deed, incorporation isn't complete until the incorporation deed is registered in the Commercial Registry
• Separate legal personality is granted to the new company upon registration

Types of Incorporation

• Simultaneous incorporation occurs when all founding partners participate in granting the incorporation deed
• Successive incorporation occurs in a public offering for subscription of shares issued by the company being incorporated

Simultaneous Incorporation Details

• Simultaneous incorporation happens when all founders grant the incorporation deed
• The minimum founder requirement of three has been eliminated; now, only one partner can create a capital company
• The incorporation deed must be filed in the Commercial Registry within two months, or founders are jointly liable for damages or harm caused by the failure to register

Successive Incorporation Details

• If there is a public promotion of share subscription in the new company prior to the incorporation deed, successive incorporation is followed
• Promoters are individuals who take initiative in the project
• The Spanish Capital Companies Act regulates successive foundation, but it is largely irrelevant in practice
• It is easier to create an S.A. with minimum capital, increase it, and offer new shares to investors

Simultaneous and Successive Incorporation

• Founders in are able to reserve special economic benefits for their involvement in incorporation
• These benefits can only be economic, up to 10% of the company's net profits after deducting the legal reserve, for up to 10 years
• Usually, founders incorporate the company and increase capital later, requiring new shareholders to pay a premium
• All capital must be subscribed, and at least 25% of each share paid before or at incorporation
• Shares are commonly issued with a "premium"

Public Limited Companies and Public Deed

• The public deed of incorporation signifies the partners' intent to create a capital company
• The bylaws set the rules for company existence, while the incorporation deed formalizes the contractual aspect
• A public limited company must have bylaws
• Partners can agree on company operation rules, but they must respect minimum content in the Spanish Capital Companies Act

Corporate Purpose

• The "corporate purpose" is mandatory in the bylaws
• The corporate purpose defines the company's activities and business type

Company in Formation

• An S.A. is considered "in formation" from the deed granting until Commercial Registry registration; it is still completing incorporation and acquiring legal personality
• Founders must carry out operations for the company in formation and may engage in business transactions
• A founder who carries out these operations will be personally liable, unless the action:
  • is contingent upon registration
  • involves expense and commitment specified in article 37 of the Spanish Companies Act
  • is accepted by the public limited company within three months of registration

Irregular Company

• Founders of a public limited company must present the deed to the Commercial Registry within two months or will be liable
• If one year passes without registration, the company is considered irregular, and:
  • any shareholder may request the dissolution and liquidation of the company's assets and return of contributions
  • operations are deemed under a General Partnership or Civil Partnership regime, so shareholders are personally and unlimitedly liable

Registration Details

• Registration in the Commercial Registry completes the incorporation process and grants the corporation its own legal personality
• Article 34 of the Spanish Capital Companies Act prohibits share transfers before registration

Shareholder Agreements (pactos parasociales)

• Shareholders commonly enter into agreements separate from the bylaws
• These agreements are valid in non-listed companies, can be kept confidential, and are not enforceable against the company
• In listed companies, shareholder agreements involving voting rights or share transfer conditions must be disclosed to the market and deposited with the Commercial Registry, or they have no effect

Nullity of the Company: General Concept

• The Spanish Notary or Commercial Registrar identify most incorporation defects
• If defects are not detected and the company incorporation is completed, the defects are not corrected
• The Spanish Capital Companies Act sets a specific regime for the nullity of the corporation and lists grounds to request the nullity of a registered company
  • e.g., lack of founder capacity or failure to specify the corporate purpose or the company's name
• The inexistence, nullity, or annulment of a registered company cannot be declared for reasons other than those listed in the Spanish Capital Companies Act

Effects of the Declaration of Nullity

• To declare a company null, an ordinary declaratory procedure is required before the Spanish civil courts
• This is extraordinarily rare, since the Spanish Notary and Registrar would prevent formation if any causes were present

Nullity Effects on Public Limited Company

• These are the effects:
  • Initiation of a liquidation process, as if the company had been dissolved
  • the obligations are valid
  • if needed, shareholders will disburse capital to pay company debts to third parties (without unlimited personal liability)
• Nullity ends the company's existence and opens its liquidation according to corporate liquidation processes