1. Bylaws
An S.A. is basically governed by the Corporations Law and by its bylaws. The bylaws of an S.A. should therefore be drafted in accordance with Corporations Law requirements and must at least include reference to:

– Name of the company.

– Business purpose. This should be stated in a concrete and precise manner, since:
- It serves to establish the general framework for the activities of the company.
- The completion of the stated business purpose automatically leads to dissolution of the company, unless the bylaws provide for an indefinite duration.
- If the business purpose is modified in such a way as to be replaced, the dissenting shareholders and non-voting shareholders, if any, can withdraw from the company and are entitled to be reimbursed for their shares.

– Duration of the company. The bylaws will ordinarily stipulate that the duration is indefinite in order to avoid triggering automatic dissolution.

– The date on which activities commence, which normally cannot be earlier than the date of execution of the public deed of incorporation.

– The location of the company’s registered office, which must be in Spain, and the body competent to establish, transfer or close branches.

– Capital stock and shares.

– Managing body.The bylaws must determine whether the administration is entrusted to a Board of Directors or to some other body or person. In the case of collective management bodies, the manner of debate and of adopting resolutions must be specified, as also the system for director’s remuneration.

– Restrictions, if any, on the free transferability of shares.

– Ancillary obligations, if any. If ancillary obligations are created, the bylaws must state the content of such obligations, whether or not they are remunerated, and the penalties, if any, for breach thereof.
Ancillary obligations are explained in further detail below.

– The accounting year-end. If not stated expressly, the company will be deemed to end its accounting year on December 31.
The business year cannot exceed twelve months.

– Special rights reserved to founders or promoters, if any.

Additionally, the public deed of incorporation, which includes the bylaws, may contain whatever agreements and covenants the founders deem fit, provided that they do not contravene any law or the fundamental principles that govern S.A.’s.

2. Capital stock requirements
The minimum subscribed capital for an S.A. is €60,101; at least 25% of the par value of all the shares must be paid in upon incorporation.

For comparison purposes, the minimum capital requirements for other types of business enterprises are as follows:

– Limited Liability Company: €3,005, which must be fully paid in.
– Limited Partnership by Shares: €60,101.
– General Partnership: no minimum capital requirement.

In addition, specific regulations may provide that the capital stock of corporations engaged in certain fields of business (e.g. banking, insurance, etc.) must, at the time of incorporation, exceed the minimum amount required by the Corporations Law.

There are currently no mandatory minimum debt-equity ratios under Spanish mercantile law for any type of business enterprise (however, there is a debt-equity ratio for tax purposes: see Chapter 4).

Lastly, it should be noted that there are special rules which could require an increase and/or reduction in capital stock.These rules provide that there must be a certain balance between the capital stock and the net worth of a corporation, whereby if losses are incurred reducing such net worth to less than one-half of capital stock, the corporation will be under a mandatory cause for dissolution, unless capital stock is sufficiently increased (or reduced) and, as from September 1, 2004, provided that it is not necessary to file for insolvency pursuant to Law 22/2003, of July 9, Insolvency Law. On the other hand, it will be obligatory to reduce the capital when losses have reduced the net worth of the company to less than two thirds of its capital stock and one fiscal year has elapsed without its net worth having recovered.

3. Shares
The following categories may be differentiated:

a) Registered vs. bearer shares
The shares of an S.A. can be registered or bearer shares. However, the shares must be registered in the following cases:

– If they are not fully paid in.

– If their transferability is subject to restrictions.

– If they are subject to ancillary obligations (see below).

When so required by special regulations (e.g. shares of banks and insurance companies).

b) Common vs. preferred stock
Preferred stock may be created as a separate class or classes pursuant to the same procedural formalities applicable to amendment of the bylaws (i.e. quorum and voting requirements and method of calling the shareholders’ meeting), and may include shares entitled to a preferential dividend.

In any case, issues of shares will not be valid in the following cases:
– Shares remunerated in the form of interest.

– Shares which directly or indirectly alter the proportionality between their parvalue and voting rights or the existing shareholders’ preferential right to subscribe new shares in capital increases.

With regard to the particular regulations on the issuance of preferred stock, there exist differences resulting from whether the company is listed or non-listed on the stock exchange.

In the case of listed companies, the following obligations are established:

– It is provided that where the privilege consists of the right to obtain a preferential dividend, when distributable profits exist the company is obliged to distribute such preferential dividend.

– The corporate bylaws should establish the consequences of failure to pay part or the entire preferential dividend, whether this is or is not accumulative as regards the unpaid dividend, and the possible rights of holders of privileged shares in connection with dividend to which the ordinary shares may be entitled.

– Higher ranking is provided for the shareholder owning privileged shares, since collection of dividend by ordinary shares against the profits of one fiscal year is imperatively prohibited until the preferential dividend for the same fiscal year has been paid.

In the case of non-listed companies, a more flexible system is maintained, since there are no rules of imperative law making specific regulations in the bylaws obligatory. Nevertheless, the company is obliged to declare a dividend wherever distributable profits exist, unless otherwise provided in its corporate bylaws.

c) Shares issued with a premium
Shares may be issued with a premium payable to the company above their par value. In such cases the premium must be fully paid in upon subscription of the shares.

d) Non-voting stock
Non-voting stock may be issued for a total par value that does not exceed onehalf of the total paid-in capital.

The special rights attached to non-voting stock are as follows:

– Minimum annual dividend
The minimum annual dividend shall be set by the bylaws in any percentage in relation to the amount of paid-in capital corresponding to each non-voting share. The minimum annual dividend and ordinary dividends are cumulative for a period of five years in the case of non-listed companies. In the case of listed companies this period will be indefinite. In other words, non-voting shares also participate proportionately with common shares if a dividend is distributed on the common shares.

– Preferential rights in liquidation
In the event of liquidation of the company, non-voting shareholders rank above common shareholders with respect to their right to obtain reimbursement of the paid-in portion of their shares.

– Capital reduction
If capital is reduced to offset losses, the reduction must first be applied against all other classes of stock before it can affect non-voting stock.

– Shareholder rights
Non-voting stock has the same basic rights as common stock except for the right to vote at shareholders’ meetings (see description of basic shareholder rights below).

However, under certain exceptional circumstances, holders of non-voting shares may acquire a transitory right to vote at shareholders’ meetings. Two examples follow:

- Non-voting shareholders acquire the right to vote if the minimum annual dividend is not distributed.

- If, due to a capital reduction, all common shares are amortized, then nonvoting stock becomes voting stock until such time as equilibrium is restored between voting and non-voting stock (i.e. new common shares are issued in sufficient number so that the total par value of non-voting stock does not exceed one-half of total paid-in capital). If equilibrium is not restored within two years, the company is subject to mandatory dissolution.

e) Redeemable shares
Redeemable shares as a form of privileged shares have been very recently introduced in Spanish corporate legislation. However the possibility of issuing this type of shares is only open to listed companies, subject to certain conditions.

Redeemable shares are those whose redemption of full or partial purchase by the issuer or by third parties is fixed in time or released at the choice of the shareholder, according to the conditions of the issue; or those whose redemption or full or partial purchase by the issuer or by third parties is undertaken in any other manner, excluding that contemplated above.

f) Shares with ancillary obligations
An ancillary obligation is an obligation to perform certain acts or to refrain from performing certain acts. Ancillary obligations do not form part of the capital stock of the company.

The shares of an S.A. can only be paid for with money or property, not with labor or services. The ancillary obligation is a device whereby the labor or services or other obligations of particular shareholders can be tied to the corporation.

g) Basic shareholder rights
The basic rights of shareholders are as follows:

– Right to share in corporate earnings and in the assets upon liquidation.

– Preferential right to subscribe new shares or convertible bond issues.

– Right to attend and vote at shareholders’ meetings (except non-voting stock) and to challenge corporate resolutions.

– Right to obtain information about the company’s affairs.

h) Share certificates
In general, shares may be either issued physically as certificates or recorded by a book-entry system. The conditions for recording shares under a book-entry system and the regulations of this system are contained in the Securities Market Law (Law 24/1988), as amended by Law 37/1998 and by Law 26/2003.