Spain: Greater flexibility to configure in the articles of association the right of first refusal in transfers of shares in Spanish companies

The ruling of the Directorate General for Legal Certainty and Public Attestation of 28 August 2023 has gone a step further in introducing greater flexibility in the clauses of the articles of association of Spanish companies that regulate the right of first refusal of shareholders in the event that one of them decides to transfer their shares: not only can it be agreed that the price for exercising the pre-emptive acquisition right is the book value of the shares, but that this price can also be used in cases of exclusion of shareholders and that the affected shareholder must assume the cost of the independent expert if he or she does not agree with this value. In this article we examine the implications of this criterion for relations between the shareholders of Spanish companies.

The transfer of shares in Spanish limited liability companies (SL)

The Spanish limited liability company is a closed company form, in which the shareholder cannot freely transfer his or her shares. The Law on Capital Companies establishes that only certain transfers are free (i.e., they do not require the authorisation of the other shareholders, nor do they have a pre-emptive acquisition right): to the shareholder’s spouse, ascendants or descendants, or to another shareholder or company in the same group. In all other cases, the general meeting must authorise the transfer, although it can only refuse such authorisation if another shareholder or the company itself offers to acquire the shares for the same price at which the shareholder intended to dispose of them.

The law gives companies a wide latitude in their articles of association to set out the restrictions on the transfer of shares in different ways, provided that they do not make the transfer of shares practically unrestricted or prohibit it altogether. Thus, clauses may be established that recognise the other shareholders’ right of pre-emptive acquisition (right of first refusal), and even those that determine the criteria and systems for setting the amount for which this right is to be exercised.

The price for exercising the right of pre-emptive acquisition

It is particularly with regard to the clauses regulating the price for exercising the right of pre-emptive acquisition that most problems arise in practice. It may make sense to agree in the articles of association that this right can be exercised at an objectively determined value, e.g., the book value as stated in the latest balance sheet, and not at the price at which the shareholder has agreed to sell his or her shares to the potential buyer. This would prevent the transferring shareholder from imposing an excessively high value on the other shareholders, which would in practice impede them from exercising their right of pre-emptive acquisition.

However, the Directorate General for Registries and Notaries (now called Directorate General for Legal Certainty and Public Attestation), in its resolution of 15 November 2016, which ruled on an appeal filed by Lozano Schindhelm, accepted for the first time that the articles of association can establish that the right of pre-emptive acquisition must be exercised at the book value of the shares. This new criterion greatly expanded the freedom of the parties to shape the clauses on the transfer of company shares, which are a key element in all shareholder agreements. Subsequent decisions (such as those of 23 May 2019 and 6 February 2020) specified that the book value rule could also be agreed for compulsory transfers and for the exclusion of shareholders.

The determination of fair value by independent experts and their remuneration

The ruling of the Directorate General for Legal Certainty and Public Attestation of 28 August 2023 recalls its previous decisions and applies them to a particular case, in which the articles of association had agreed to refer to the book value in the case of exercising the pre-emptive acquisition right and for the exclusion of shareholders, giving the transferring or excluded shareholder the power to challenge this book value by requesting the appointment of an independent expert to determine the fair value of the shares. The discussion focused on whether the shareholder who disagreed with the book value could be obliged to assume the cost of the independent expert’s remuneration, to which the ruling gives an affirmative answer. The case is very particular, but it confirms that the administrative criterion is in favour of extending the discretion will of the parties to configure the rules of transfer of company shares with great freedom.

Autor: Carlos Fernández