Compulsory transfer of shares

Compulsory transfer of shares

It is possible that, under certain circumstances, the shareholders or shareholders of a company may change in a hurry. This is due to the fact that, fundamentally, due to judicial procedures of seizure, execution of guarantees, among others, the participations or shares constitute part of those guarantees in favor of one of the parties to face a specific obligation. 

Therefore, the compulsory transfer of shares in a Limited Liability Company implies a particular transfer mechanism of the shares, by means of which, those shares that constitute the specific guarantee are compulsorily given in order to meet a specific obligation. 

The origin of the forced transfer is found in a seizure of the shareholder’s shares, derived from debts or guarantees that give rise to the awarding of the shares to a third party as a form of payment of the credit right that the shareholder has. 

How does it work? 

The forced transfer in a Limited Liability Company is regulated in Article 109 of the Capital Companies Law. Specifically, it is contemplated that the seizure of the shares must be notified to the company immediately upon its occurrence. 

Once notified, the company must enter the seizure in the register of shareholders, notifying all the shareholders. The copy of the notification received must be attached. Once the public auction has been held, the adjudication of the social participations must be suspended until the result of the auction is known. 

Once the auction is held, a copy with the literal content of the adopted resolution must be sent to the company, which, subsequently, must be sent to all the shareholders within a term not exceeding 5 working days. 

In order for the auction or adjudication of the shares to become final, a period of one month must elapse, giving the shareholders the option to subrogate themselves in the position of the auctioneer or the creditor, satisfying the initial obligation in order to be able to acquire instead the shares to which they are entitled by virtue of the forced transfer of the aforementioned shares. 

Additionally, the company will have an option to be subrogated provided that its bylaws expressly so provide. In any case, in order for the subrogation to be valid, all the conditions of the auction must be accepted, and the amount of the auction must be added to the expenses incurred. 

In any case, if the subrogation is exercised by several shareholders, the shares must be distributed among all the shareholders pro rata to their shares in the capital stock, with the corresponding payment of the price. 

Forced transfer in an S.L. 

Unlike Corporations, in Limited Liability Companies, the transfer of shares is much more limited in order to effectively safeguard the corporate structure, so as to maintain a certain stability in the company. This is due to the fact that the legislator, at the time of structuring the corporate regime, understood that the basis of the limited liability companies is the trust existing among the shareholders, being necessary to protect it in a way that guarantees to safeguard their relations. Therefore, the regime of compulsory transfer in a limited liability company has certain guarantees that allow the company itself or the shareholders to acquire the shares of the company that are the object of the transfer. 

Special legal consideration on the right of preferential acquisition in cases of compulsory transfer of shares in the company

As mentioned above, the special regime of transferability that affects Limited Liability Companies means that it must be taken into account when providing certain guarantees to the shareholders and to the company that may be affected by the guarantee of the shares by another shareholder. 

Thus, following the general guidelines of the General Directorate of Legal Security and Public Faith, the shareholders and the company (if provided for in the bylaws) can make use of the preferential subscription right, being able to consign the total amount of the shares in the auction or adjudication procedure as mentioned above. In this sense, what will not be allowed is the partial acquisition of a part of the seized shares or their payment in installments. 

This guarantee allows the company’s structure to continue to be preserved and the creditor’s debt to be satisfied by reimbursing the creditor for the payment of the price due to him arising from the initial debt that gave rise to the collection of the corresponding guarantee. 

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