The duties of the shareholders in the limited liability company

We have had the opportunity to address previously the interesting subject related to the duties of the administrators in the limited liability companies. Despite it and of being undoubtedly a recurrent consultation, many times it is forgotten the important role that the shareholders have and their different duties with the company.

Today in our entry, we will try to expose briefly which are the main duties that the shareholders have in a capital company and the consequences that can derive from their noncompliance.

The duties of the shareholders in Limited Liability Companies

Contrary to the frequent affirmation that the only duty of the shareholder is to contribute with capital to the company, both the Spanish Capital Companies Law and the Supreme Court Jurisprudence have allowed to delimit a series of obligations inherent to the condition of shareholder in a Limited Liability Company, duties that, if breached, derive in liability assumptions.

The duties of the shareholders in a company are, without any doubt, a mechanism that allows to provide security and guarantees to the other participants in the sphere of the company, from the directors, to the other shareholders and to third parties with a legitimate interest.

Thus, it has been possible to delimit a catalog of the main duties of the shareholders, among which we can mention the duty to notify their intention to transfer shares, comply with the accessory obligations established in the Bylaws, duty of loyalty, duty of good faith, duty of contribution, among others.

The following are the main considerations to be taken into account for each of them.

The duty to notify the shareholder’s intention to transfer the shares

It is important to understand that the regime for the transfer of corporate shares will be different between a corporation (S.A. in Spain) and a limited liability company (S.L. in Spain). Mainly, in the corporation the transfer will be free while in the limited liability company it will be subject to a series of formalities and obligations stipulated in the Spanish Capital Companies Law.

One of the main duties of the shareholder in a limited liability company is to notify the other shareholders of his demand to transfer the shares held in his name. This is to ensure compliance with the right of the shareholders to preferential acquisition of the shares.

In order to comply with this legal obligation, the shareholder who intends to transfer his shares must notify the management body of the company in writing (article 107 of the LSC, Capital Companies Law), stating the number of shares he wishes to transfer, the person who is going to acquire them, the price and other characteristics of the operation.

In addition, it will not only be enough to communicate the desire of the shareholder to transfer the shares, then, the company itself, that is to say, its shareholders gathered in General Meeting, will have to consent to the transfer of the shares. At that moment, if there is any shareholder interested in acquiring the shares under the terms of the offer, he/she can announce it and proceed with the acquisition.

It is important to pay attention to any other stipulations relating to the transfer of the shares that are included in the Bylaws, either to make their transfer more difficult or to facilitate it. In any case, the provisions of Article 108 of the LSC must be kept in mind at all times, which states that any provision in the Bylaws that makes the transfer of shares in a Limited Liability Company practically free will be null and void.

It is also important to note that, unless expressly provided for in the Bylaws, the transfer of shares in favor of spouses, ascendants, descendants, or other shareholders will be completely free, without the need for prior notification and subsequent approval by the General Meeting of Shareholders of the Company.

The fulfillment of the ancillary services defined in the articles of incorporation

At the time of incorporation of a limited liability company, the shareholders have essentially two obligations: to contribute the necessary capital, in this case at least 3,000 euros, and additionally the so-called ancillary services.

The regulation of ancillary services is contained in Article 86 of the LSC, determining that the obligations can be essentially to give something to the company, for example, real estate, or an obligation to do, such as the obligation of one or all of them to provide their work to the company.

In any case, the Company’s Bylaws must define the specific ancillary obligation that the shareholder must provide and the terms under which it must perform it and must also determine whether it will be done free of charge or in exchange for financial compensation.

The shareholder’s general duty of good faith

Every shareholder has a duty to act in good faith in accordance with the provisions of the Civil Code, specifically as stipulated in Article 1.258.

Based on the logic of our mercantile system in which it is understood that the Company arises from the partnership contract previously, freely and voluntarily entered into by the shareholders, the provisions of the contract must be complied with in accordance with good faith.

A clear example of acting in bad faith is when the company has a debt with a third party that it knows it will not be able to pay and decides to approve a dividend reimbursement at the end of a fiscal year, which is an action contrary to good faith.

Duty of Loyalty of the shareholders in a limited partnership

In general, the duty of loyalty of the directors of a company is usually discussed, but the most debated aspect is the duty of loyalty of the shareholders.

Therefore, the duty of loyalty of the partners is usually understood in a strictly fiduciary sense, i.e., the obligation of the shareholder to put the corporate interest before his own interest when making discretionary decisions, his will being decisive in the actions or in the inaction of the corporate bodies.

We must add that a shareholder’s conduct, just because it is oriented to his personal interests, is not contrary to the duty of loyalty, in the end, it is necessary to make a weighing evaluating the concrete situation in order to determine if the duty of loyalty has been complied with or if it has been breached.

In LETSLAW we are experts in advising for the resolution of corporate conflicts. Our professionals have more than 10 years of experience advising shareholders in limited liability companies.