Sale and purchase of company shares

Sale and purchase of company shares

The sale and purchase of company shares is a particularly significant operation in the life of a limited liability company (Sociedad Limitada). Although it may initially appear to be a simple agreement between two parties, it is in fact subject to a very specific legal framework whose main objective is to protect the internal stability of the company and ensure that the entry or exit of shareholders is managed correctly.

The complexity of these transactions increases when there are internal tensions, disagreements between shareholders, or when potential transfer scenarios have not been anticipated sufficiently in advance.

For these reasons, it is essential to understand not only the requirements imposed by the Spanish Companies Act (Ley de Sociedades de Capital), but also the rights, obligations, and possible protection mechanisms that can be established to prevent conflicts. Below, the three essential pillars of any share transfer operation are explained in practical terms.

Legal aspects of the sale and purchase of shares

The transfer of company shares is subject to a regime of limitations and formalities designed to prevent the entry of third parties who could disrupt the internal balance of the company.

Review of bylaws and shareholders’ agreements

Before beginning any transfer process, the first essential step is to review the company’s bylaws. These contain the procedures, restrictions and requirements that must be fulfilled for the transfer to be authorised.

If a shareholders’ agreement exists, it must also be taken into account, as it usually contains additional clauses regulating issues such as sales, shareholder exits, valuation of shares, or specific restrictions on transferability.

Formal communication and minimum content

The law requires that any shareholder wishing to transfer their shares must notify the company’s management body in writing. This communication cannot be generic; it must provide sufficient information so that the other shareholders can decide whether to exercise their rights. At minimum, communication must include:

1. Number of shares to be transferred.
2. Price and payment terms.
3. Identity of the potential purchaser.
4. Additional conditions of the transaction.
5. Whether the shares are subject to ancillary obligations or specific restrictions.

Once the communication has been received, management must activate the procedure set out in the bylaws or in the Companies Act, which typically includes convening a general meeting to decide whether to authorise the transfer.

Cases of free transferability

The law provides certain situations in which a transfer may be carried out without requiring approval from the General Meeting. These commonly include:

• Transfer to another shareholder.
• Transfer to the spouse, ascendants, or descendants of the transferring shareholder.
• Transfer to companies within the same group.

These situations may be limited if the bylaws impose additional restrictions, so it is always essential to review the current wording applicable to each company.

Deadlines and effects of lack of interest by shareholders

If none of the shareholders expresses an interest in acquiring the shares within the statutory or legal timeframe, the transferring shareholder regains the freedom to transfer them to the proposed third party, provided the sale is completed under the same terms initially communicated.

When the transfer is authorised or legally considered free, it must be formalised in a public deed, enabling the registration of the new shareholder in the shareholders’ register book. This formality is essential, as shareholder status is only fully acquired once this registration has taken place.

Rights and obligations of shareholders

The sale of shares does not affect only the selling shareholder: it involves all the company’s shareholders, who have specific rights designed to protect their position in the company. Likewise, the transferring shareholder must comply with various obligations to guarantee the transparency and legality of the process.

Obligations of the transferring shareholder

1. Notify them of their intention to transfer in accordance with legal and statutory requirements.
2. Provide complete information about the operation, price, and conditions.
3. Respect the pre-emptive acquisition rights of the other shareholders.
4. Maintain the price and terms originally communicated if the sale is ultimately made to a third party, without altering the initial offer.

Rights of the remaining shareholders

The main right of the other shareholders is the first refusal right, which allows them to acquire the shares before they are sold to third parties. This right is usually exercised:

• In proportion to each shareholder’s percentage.
• Within the timeframe established by the bylaws or by law.
• With formal acceptance or rejection.

If several shareholders wish to acquire the shares, the allocation is made in accordance with each one’s percentage of share capital.

If no shareholder wishes to acquire the shares, the General Meeting may agree that the company itself acquires them, provided the bylaws permit it. In such cases, the shares become treasury shares, subject to the applicable legal limits.

Transfer to third parties

Only when all previous steps have been followed and the relevant period has passed without the shareholders or the company exercising their rights may the transferring shareholder sell to a third party. This rule aims to maintain internal control of the company and prevent outsiders from entering without the prior or implicit consent of the existing shareholders.

Clauses and precautions to avoid shareholder disputes

Many conflicts arising in share transfer processes stem from a lack of foresight. For this reason, it is advisable to establish certain clauses in shareholders’ agreements that allow for the orderly management of different scenarios.

Tag along clauses

These protect minority shareholders. If a majority shareholder wishes to sell their stake to a third party, minority shareholders have the right to join the transaction and sell on the same terms. This prevents a change in control that could leave minority shareholders in a vulnerable position.

Drag along clauses

Common in investment transactions. If a buyer wishes to purchase all or a majority stake in the company, drag-along clauses allow majority shareholders to compel minority shareholders to sell, ensuring they cannot block a strategic operation for the company.

Additional transfer restrictions

Restrictions may be included to prevent the entry of certain profiles, such as direct competitors or individuals likely to create conflict within the company. The key is that these restrictions must be proportionate and must not permanently prevent transfers.

Valuation mechanisms

One of the most common sources of conflict is the valuation of the shares. For this reason, it is advisable to establish objective valuation mechanisms in advance, such as:

• Valuation by an independent expert
• Formulas based on EBITDA
• Having a clear system provides security to both buyers and sellers.

The sale and purchase of company shares is a process that must be managed in strict compliance with legal procedures, respecting shareholders’ rights, and establishing contractual clauses that guarantee corporate stability. These are the pillars that ensure a safe and conflict-free transaction.

The commercial lawyers at Letslaw can provide you with the legal advice you need for the sale and purchase of shares in your company.