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4. Main Characteristics of Corporations and Limited Liability Companies

4.5 Basic rights of corporation and limited liability company shareholders

The basic rights of shareholders are as follows:

  • Right to share in corporate earnings and assets upon liquidation.
  • Preferential right to subscribe new shares or convertible bond issues.
  • Right to attend shareholders’ meetings. At limited liability companies, the bylaws cannot require a minimum number of shares in order to attend meetings. Nonetheless, in the case of corporations, the bylaws may require that a minimum number of shares (regardless of their class or series) be held with respect to all of the shares in order to attend shareholders’ meetings, however the number required may not exceed one thousandth of the capital stock under any circumstances.
  • Right to attend and vote at shareholders’ meetings (except non-voting stock) and to challenge corporate resolutions.
  • Right to obtain information about the company’s affairs.
  • Right of withdrawal: apart from in the cases established by the bylaws and in the cases of change of corporate form of the company or of relocation of the registered office, shareholders who have not voted for the relevant resolution, including shareholders without a vote, will be entitled to withdraw from the company in the following cases:
    • Replacement or material modification of the corporate purpose.
    • Extension or reactivation of the company.
    • Creation, modification or early termination of the requirement to perform ancillary obligations, unless provided otherwise in the bylaws.
    • Amendment of the rules on transferring shares in the case of limited liability companies.
    • In the event of a failure to distribute dividends, unless provided otherwise in the bylaws. Following the amendment introduced on December 30, 2018, article 348 bis of the Capital Companies Law establishes a right of withdrawal for shareholders of limited liability companies or corporations (except for (i) listed companies or companies whose shares are admitted to trading on a multilateral trading facility; (ii) companies in situations of insolvency or pre-insolvency, and (iii) sports corporations) in the event of a failure to distribute dividends once the fifth fiscal year since the company was registered at the Commercial Registry has elapsed7.

    The requirements for shareholders to be able to exercise this right of withdrawal (within one month after the shareholders’ meeting was held) are as follows:

    1. The shareholder’s protest due to the insufficiency of dividends recognized must be recorded in the certificate of distribution of income.
    2. The shareholders’ meeting must not approve the distribution as a dividend of a least twenty-five percent of the income obtained in the preceding year where such income is legally distributable, provided that the company has not obtained income in the past three fiscal years.
    3. The total amount of dividends distributed in the past five years must be less than twenty-five percent of the legally distributable income recorded in that period.

    Also, even if the above requirements are not met, this right of withdrawal is granted to the shareholder of the parent company of the group where the company in question is required to prepare consolidated financial statements, where: (i) the shareholders of the company do not approve the distribution as a dividend of at least twenty-five percent of the consolidated income attributed to the parent company in the prior year, provided that it is legally distributable; and (ii) consolidated income attributed to the parent company has been obtained in the past three fiscal years.

7It should be noted that, as a result of the COVI-19 pandemic, in accordance with Royal Decree-Law 18/2020, enterprises that avail themselves of the special temporary layoff (ERTE) regime will not be able to distribute dividends relating to the fiscal year in which the ERTE was applied, unless they first pay the amount relating to the exemption applied to social security contributions. In this respect, the fiscal year when the company does not distribute dividends as a result of applying the above-mentioned provision will not count for the purpose of the right to withdrawal of shareholders under article 348 bis of the Capital Companies Law. This restriction will not be applicable to those entities that, as of February 29, 2020, have less than fifty employees or similar persons registered with the Social Security System.