lesson 4 condensed incorporation of cap

incoproation

the incoproation/consitution of a capital company is the legal process through which a company is created and obtains legal personality

• before incorporation the company does not legally exist

  • founders act in their personal capacity

• after incopration the company becomes a separate legal person

  • capable of owning property entering contracts and sueing/being sued

• the rules governing incopration in spain are found in the lsc

requirements for all capital companies

public deed of incopration

• founders must appear before a notary and sign a public deed of incopration declaring their intention to create the company

• the notary verifies the legality and authenticity of the act

• the deed includes

  • identity of founders

  • company name

  • registered office

  • corporate purpose

  • amount of share capital

  • distributions of shares/participations

  • company by laws

registration in commercial registry

• after the deed is signed it must be registered in com reg

• registration has a constitutive effect

  • before the company exists only as a company in formation

    • founders may incur personal liability

  • after registration the company becomes a separate legal entity

    • liability becomes limited according to company type

capital requirements

share capital consist of assets contributed by shareholders when the company is formed

• sl=typically smaller closed companies requiring immediate funding

  • capital must be fully subscribed= all shares must have owners

  • capital must be fully paid at incorporation

• SA= open market orientated companies allows progressive capital funding

  • capital must be fully subscribed

  • minimum 25% paid initially

  • the remaining amount is a pending disbursement

incorporation procures

SA=2 procedures

• simultaneous foundation=

  • all shareholders subscribe their shares simultaneously

  • capital is contributed immediately

  • company is created upon registration

• successive incorporation=

  • used to raise capital from the public

  • shares are offered progressively to investors

  • rarely used in practice due to complexity

SL=

• can only be incorporated simultaneously

  • all partners participate from the beginning

  • capital fully subscribed and paid at incorporation

• Digital incorporation= procedure is conducted electronically

  • permitted when contributions are monetary only

  • simplify and accelerate company creation

public deed of incopration

the public deed is the official legal document through which founders create the company

• records the founders agreement

• contains essential company elements

• is certified by a notary

• without it registration cannot occur

mandatory content

• identification of founders= name nationality id number adress of initial share holders

• declaration of will= formal statement confirming intention to create the company and accepts its legal form

• contributions and capital strucuture=

  • contributions of each founder

  • value of the contribution

  • ownership structure= shares in sa and stakes in sl

• bylaws= internal rules of the company regulating

  • corporate purpose ie business activity

  • share capital

  • trasnfer of shares

  • decision making

  • management structure

• appointment of adminstrators= initial management body must be designated

  • single administrator= one with sole managing power

  • joint adminstartors = anyone with managing power

  • several administrators= specific for different things

  • board of directors= joint acting together

• incorporation expenses in sa only= indicate approximate formation costs for transparency

  • notary fees

  • registration fees

  • legal costs

• additional clauses= can include additional provisions provided they respect the law

  • profit disitirbution

  • trasnfer restrictions

  • special shareholder rights

bylaws

the internal rules governing how the companys organisation and operation

• function as the companys internal consitution

  • management structure

  • decision making ie voting

  • capital organisation

  • shareholder rights

• can only be modified through

  • consent of the gm

  • new public deed (notarised)

  • registration in the commercial registry

    • only effective against third parties after registration

mandatory content of bylaws

• corporate identification

  • company name= must indicate legal form+ be unique

  • corporate purpose= economic activity of the company

  • registered office= legal adress and relevant registry office

• administration system=

  • management structure= single, joint,several, board of directors

  • number of directors

  • directors term of office (max 6 years in sa)

  • remuneration system= if not specified presumed unpaid

• share capital structure=

  • total capital figure

  • number of shares and stakes

  • nominal value per share

  • sequential numbering= identifying shareholders

• duration and start of operations

  • usually have indefinite duration but may specify a fixed period

  • start of operations may coincide with incopration or occur later

additional requirements for sa as an open public company

• unpaid capital at incoproation

  • payement method and terms for the remaining capital

• different share classes ie ordinary, preference, non voting

• method of representation= paper certificates or book entries

• trasnfer restrictions on shares

• ancillary olbigations (anything other than payement of contribution)

deed vs bylaws

• the dead creates the company legally recording the founders agreement

• the bylaws regulate the internal functioning of the company after creation

paraoscial agreements

private shareholders agreements regulating their relationships as shareholders

• not included in the deed or the bylaws

• not registered in the commercial registry

legal effects

• binding only on signatory shareholders

• does not bind the company or effect third parties

  • corporate decisions remain valid even if they violate the agreement

  • the breaching shareholder may incur contractual liability ie damages

registration

registration completes the incorporation process

• company acquires legal personality

• becomes a separate legal entity

• gains capacity to act in own name ie own property and contract

a company that completes registration is a regularly incoprated company

• if not registered no full legal personality occurs= founders may incur personal liability for acts

company in formation

between signing deed and registration the company exists in formation

• maximum duration of a year

• persons acting on behalf of the company are jointly and severally able for acts

  • exception= if the contract expressly states its conditional on registration and the company then later assumes it

• after registration the company automatically assumes liability for

  • acts necessary for incopration ie costs and legal fees

  • authorised acts by administrators during formation

  • acts authorised by all shareholders

• the company may also assume other acts expressly within 3 months after registration

irregular company

becomes irregular if incorporation is not completed

• when founders clearly don’t intend to register

• registration is not requested within 1 year

effects

• any partner may request dissolution of the company = assets are liquidated and remaining contributions returned

• the company becomes governed by partnership rules instead of capital company law ie personal not limited liability

nullity

even after registration a company can be declared void due to serious defects

• absence or illegality of corporate purpose ie selling illegal drugs

• missing essential formal elements in deed or bylaws ie name capital contributions

• failure to meet minimum capital payement ie 25% in sa and full in sl

• lack of genuine consent of founders

  • at least 2 founders with valid consent or 1 in a single member company

• lack of legal capacity of all founders ie vices

  • if only affecting one founder only applies to them

nullity operates like dissolution= it is not retroactive invalidity to protect good faith third parties

• company enters liquidation

• assets are collected and debts are paid

• remaining assets are distributed to shareholders

contributions to capital

contributions are assets or rights provided by shareholders forming the share capital at incopration or during capital increase

• allowed= money, assets, property rights

• prohibited= work/services (industry contributions) too hard to value

• contributions are trasnfered to the company in full ownership unless expressly agreed otherwise ie a licence to use a patent

monetary= payements of money

• requires proof= bank certificate or payement directly to the notary

  • SL EXCEPTION= proof may be waived for founders to become jointly and severally liable for contribution

non montary= real estate, machinery, ip rights

• they must have economic value

  • valuation in sa= mandatory indpendant expert appointed by the com reg

    • excluded if already valued

      • recently evaluated within last 6 months

      • a listed security on stock exchange eg

      • mergers or divisions

  • valuation in sl= optional

    • instead founders have joint and several liability for 5 years for valuation accuracy

• must be trasnferable to the company (valid ownership)

  • guarantee proper delivery of the asset

  • absence of hidden defects reducing value or usefulness

  • absence of legal encumbrances causing loss of asset due to superior third party legal claim

    • the contributor must compensate the company if breached

special types of contrbiutions

credit claims

• the contributor guarantees existence of a credit/debt by a third party

• the contributor guarantees solvency of the debtor ie they will pay

• if the debtor defaults the contributor is liable for the contribution

contribution of enterprise

• contribute guarantees the existence and functioning of

  • essential assets,

  • operational elements

  • the economic value of the business

• the enterprise is transferred as a whole unit

subscription and disbursement of capital

• subscription= commitment to acquire shares and provide capital

  • in both forms all capital must be fully subscribed at incorporation

• disbursement= the actual payement of the capital

  • in sl= full disbursement at formation

  • in sa= only 25% initially required with the remaining pending disbursements

    • if monetary must be paid within 5 years

    • if non monetary determined by company by laws

pending disbursements

shareholders owe the unpaid portion of their shares

• all shares with unpaid capital must be registered shares in the share registry for transparency and identification

• share holders require 1 month notice before demand via

  • personal notification

  • or publication in the official gazette borme

• if unpaid shareholders temporarily loose rights

  • voting rights, dividends rights and preemptive subscription rights

• the company may

  • sue for payement of pending disbursement + interest

  • sell the shares

  • redeem the shares and reduced share capital

• if shares are transferred the old and new shareholders are jointly liable for the unpaid portion for 3 years

  • after 3 years only the new shareholder is liable

ancillary commitments

additional obligations assumed by shareholders beyond capital contributions

• do not form part of the share capital

• types

  • obligations to give= provide goods or equipment

  • obligations to do= provide services or management

  • obligations not to do= non compete and condifentiatily agreements

• shares linked to ancillary obligations cannot be freely trasnfered

  • requires management consent (gm in sl and administrative body in sa)

• modification of obligations requires

  • consent of the affected shareholder

  • amendment of the bylaws

• right of seperation= shareholders who vote against the creation/modification or removal of ancillary obligations may leave the company and receive the value of their shares

  • unless the bylaw limits or excludes this right