Corporate Company Incorporation

Incorporation of Corporate Companies

• Refers to the act where original partners express their intent to create a company, formalized in a public deed
• Process completes with registration of the incorporation deed in the Commercial Registry
• This grants separate legal personality to the new company

Types of Incorporation

• Simultaneous: all founding partners participate in granting the incorporation deed
• Successive: public offering for subscription of shares issued by the company to be incorporated

Simultaneous Incorporation

• Takes place through granting the incorporation deed by all partners who create the company
• Only one partner is needed to create a capital company; the historical minimum of three founders has been eliminated
• The incorporation deed must be filed for registration in the Commercial Registry within two months
• Failure results in the founders being jointly liable for damages or harm caused by the failure

Successive Incorporation

• Procedure is followed when there is a public promotion of the subscription of shares in the new company before the incorporation deed
• Individuals who take the initiative in the project are the promoters
• The Spanish Capital Companies Act regulates successive foundation in detail
• Creating an S.A. with minimum capital, increasing it, and offering new shares to investors is easier in practice

Simultaneous and Successive Incorporation

• Founders in simultaneous foundation and promoters in successive foundation may reserve special economic benefits
• These benefits are for their involvement in the incorporation of the S.A.
• Advantages of an economic nature may amount to a maximum of 10% of the company's net profits, after deducting the legal reserve, for up to 10 years
• It is better and easier for founders to incorporate the company and increase the capital later
• New shareholders pay a premium (subscribe to the shares and pay an additional amount)
• All the capital must be subscribed, and at least 25% of each share must be paid in before or at incorporation
• Shares are commonly issued with an additional contribution ("premium")

Public Deed

• Formalises the intention of the partners to create a capital company
• Bylaws set the rules that govern the company's existence
• It is mandatory for a public limited company to have bylaws
• Partners can agree on rules regulating operations, but must respect minimum content in the Spanish Capital Companies Act
• The "corporate purpose" is a mandatory provision in the bylaws
• Defines the scope of the company's activities and the type of business it will engage in

Company in Formation

• From granting the deed until registration in the Commercial Registry, the S.A. is "in formation"
• It is still in the process of completing incorporation and acquiring its own legal personality
• The founders must carry out operations on behalf of the company in formation
• The founder becomes personally liable unless the action: is contingent upon registration, involves expense and commitment specified in article 37 of the Spanish Companies Act, and is accepted by the public limited company within three months of registration

Irregular Company

• The founders of a public limited company must present the deed to the Commercial Registry within two months of its granting or will be liable
• If one year passes without registration, the company is considered irregular and subject to a general regime
• Any shareholder may request the dissolution and liquidation of the company
• Assets and the return of contributions made by shareholders
• Operations are deemed under the regime of a General Partnership or Civil Partnership

Registration

• Registration in the relevant Commercial Registry completes the incorporation process and grants the corporation its own legal personality
• It gives it the status of a true corporation with all the structural characteristics
• Article 34 of the Spanish Capital Companies Act prohibits the transfer of shares before registration in the Commercial Registry

Shareholder agreements (pactos parasociales)

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

General Concept

• Any defects in the incorporation process will be identified by the Spanish Notary or the Commercial Registrar when reviewing the deed
• If any defects are not detected and the incorporation of the company is completed with its registration in the Commercial Registry, this does not imply that the defects have been corrected
• The Spanish Capital Companies Act establishes a specific regime for the nullity of the corporation
• Lists grounds to request the nullity of a registered company
• 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

• Must be obtained through an ordinary declaratory procedure before the Spanish civil courts
• Rare, as it is very difficult for the causes outlined in the Spanish Capital Companies Act to arise

Effects of the Declaration of Nullity

• Initiation of a liquidation process, as if the company had been dissolved
• The nullity does not affect the validity or enforceability of obligations and debts incurred by the company
• Shareholders will pay the company's debts to third parties by disbursing undisbursed capital
• The nullity ends the company's existence and opens the way for liquidation according to corporate liquidation processes