The rights of partners in a limited partnership

 The rights of partners in a limited partnership

When acquiring shares in a limited liability company, in addition to becoming part of the company’s share capital, shareholders generally gain a series of social rights that can be divided into two major categories: economic-property rights and political rights. 

In any case, before analyzing them, it is important to remember that this article discusses these rights from the perspective of the Capital Companies Law, which, as the reader of this blog may know, can be complemented by rights agreed upon by the members and the company in the shareholders’ agreement, such as pre-emptive rights or exit rights for a nominal amount.

Economic-Property Rights

As the name suggests, these rights are linked to the economic content of the shares and the percentage they represent in the share capital. Specifically, they are as follows:

1. Right to participate in corporate profits (dividends): this right refers both to participating in the company’s prosperity in an abstract sense and to the right to receive dividends. This occurs when the general meeting, after the administrators have fulfilled legal obligations (e.g., allocating to the legal reserve), decides to distribute profits among the shareholders, proportionate to their participation in the share capital. However, there may be corporate instruments, such as phantom shares, that modify the final amount to be received.
2. Right to participate in the assets resulting from liquidation: unless otherwise provided in the company’s bylaws, this right allows shareholders to receive a proportional share of the assets resulting after payments and/or debts have been covered.
3. Pre-emptive subscription right: this right applies when the company increases its share capital and allows shareholders, who comply with legal procedures and deadlines, to assume a number of new shares or subscribe to a number of shares proportional to the nominal value of the shares they already hold. However, there will be no pre-emptive right when the capital increase is due to the absorption of another company, the acquisition of part of another company’s assets through a spin-off, or the conversion of bonds into shares.

Political Rights

These rights enable shareholders to influence the company’s actions:

1. Right to information: this primarily involves the right to request, in writing before the general meeting or verbally during the meeting, the reports or clarifications they deem necessary regarding the matters included in the agenda. Additionally, if the agenda for the general meeting includes the approval of accounts, the shareholder can immediately and freely obtain the documents that must be submitted for approval, as well as, if applicable, the management report and the auditor’s report.
2. Right to attend meetings: shareholders have the right to attend the general meeting, to intervene by casting their vote, and during the meeting, to raise any issues they consider pertinent during the question-and-answer session.
3. Right to vote: this right allows shareholders to vote at the general meeting. To exercise this right, they must be informed, fulfilling the requirements mentioned in the previous section.
4. Right to challenge corporate resolutions: shareholders may challenge resolutions that are contrary to the law, oppose the bylaws or the company’s general meeting regulations, or harm the company’s interest to the benefit of one or more shareholders or third parties. However, only shareholders who acquired their status before the resolution was adopted, and who represent, individually or jointly, at least one percent of the share capital, may challenge such resolutions.

Additionally, shareholders have the right to withdraw in certain predetermined circumstances. Moreover, when shareholders, individually or jointly, represent at least five percent of the share capital, they gain additional rights that will be discussed in a future post. Among these, we can mention the right to request the administrators to convene a general meeting, specifying the issues to be addressed. 

In companies not required to have their annual accounts audited, they may also request the commercial registrar of the company’s registered office to appoint, at the company’s expense, an auditor to review the annual accounts of a particular financial year, provided that no more than three months have passed since the end of that financial year.