Luis Prados Ramos
Notary

I WANT TO QUIT BEING A MEMBER.

I WANT TO QUIT BEING A MEMBER.

From time to time, we receive queries from people at the Notary Office who want to give up continuing to be a partner in a company. The reason for these queries is that many times people do not enter a company after an analysis of the business project they want to carry out, but rather for reasons of friendship, to do a favour, but then when things go wrong they try to escape and it turns out that this escape requires the consent of the other partners to some extent.

Therefore, when you want to resign from your membership, what you really want is to leave the company without counting on anyone, even if it means a loss of money. Having said this, I am going to make a brief foray into the subject, from an eminently practical point of view.

Corporate law provides two ways for a partner to leave a company in which he is a member. "prisoner":

a) the sale of the shares

and b) the exercise of the right to separate.

What I want to introduce into the debate is whether a partner could renounce the company shares, that is, abandon them, and what would be the requirements and effects of such a renunciation.

A.- THE PURCHASE AND SALE OF SHARES.

Although we are talking about a sale, in reality, it is more correct to refer to the transfer of company shares, since this can derive from a sale or from another legal transaction, both onerous and free, such as exchange, payment in kind, contribution to a company, donation...

A common characteristic of all these operations is that when they affect company shares, there is a change in the ownership of the composition of the company's share capital, but the latter as an object remains unchanged.

Let's take an example:

If a company is owned by three partners: A, B and C, each of whom owns a third of the share capital, if A sells his shares to D, the only thing that will have happened is that the three partners will be B, C and D, but the company will not have, from a legal and financial point of view, any modification, since it will continue to have the same share capital, the same bylaws will apply, and the composition of its assets and liabilities will be the same..

However, limited liability companies are not a vehicle for purely financial investments, and in fact forgetting this maxim causes quite a lot of trouble. When we participate in a limited company, we are linked to other people, due to the circumstances that occur in each of them, and it is normal for all the partners to be linked and work, to a greater or lesser extent, in the development of the company.

Therefore, although theoretically the transfer of shares does not affect the company, in practice this is not the case, since the partner who leaves may have contacts, knowledge or other conditions without which the company cannot function as it should, which are modernly called intangibles.

For these reasons, the Capital Companies Act regulates in its article 107, the transfer of shares, beating at the core of its regulation, that not just anyone can enter a company, and although by statutory means this legal system can be modified, making it more lax or stricter, there are a series of limits, which are included in article 108 LSC, which tells us:

1. Statutory clauses that make the voluntary transfer of company shares practically free by inter vivos acts shall be void.

2. Any statutory clauses under which a partner who offers all or part of his shares is obliged to transfer a number different from that offered shall be void.

3. Clauses prohibiting the voluntary transfer of shares by inter vivos acts will only be valid if the bylaws grant the shareholder the right to withdraw from the company at any time. The incorporation of these clauses into the bylaws will require the consent of all the shareholders.

4. Notwithstanding the provisions of the previous section, the bylaws may prevent the voluntary transfer of shares by inter vivos acts, or the exercise of the right of withdrawal, for a period of time not exceeding five years from the incorporation of the company, or for shares arising from a capital increase, from the granting of the public deed of its execution.

In any case, the transfer of shares requires the existence of a buyer or acquirer, so if we do not find one, it will be difficult for the partner to leave the company.

On the other hand, the transfer of shares has no impact on the company's taxation. The purchaser must pay the tax on property transfers, which is exempt if they meet the requirements of article 314 LMV (previously the very famous article 108), and the transferor must include the corresponding change in assets in their income tax return.

B.- SEPARATION OF PARTNERS

This figure allows a partner who has not voted in favor of certain agreements of special importance to leave the company, recovering his investment, which will be paid by the company itself, either by acquiring the shares of the partner who is leaving, which will be under a treasury portfolio regime, or by reducing the share capital.

The difference between the separation of a partner and the purchase and sale of the shares is that by exercising the right of separation, the financial situation of the company is affected, to the extent that the value attributed to the shares of the separated partner disappears from the share capital and, where applicable, from the reserves.

The agreements that allow the right to separate to be exercised are: a) Substitution or substantial modification of the corporate purpose; b) Extension of the company; c) Reactivation of the company; d) Creation, modification or early termination of the obligation to perform accessory services, unless otherwise provided in the bylaws.

As a specific cause for limited liability companies, partners will also have the right to withdraw from the company if they have not voted in favor of the agreement to modify the regime for the transfer of shares.

And in 2011 a new cause for separation was introduced, through article 348 bis LSC, due to lack of distribution of dividends.

New causes for separation can be introduced through the bylaws, and the cause, the manner of exercising the right to separate and the period of its exercise must be established. Within this matter, legal doctrine raised the question of whether it was possible to establish a right to separate ad nutum, that is, without alleging just cause, which ended up being recognized by the Jurisprudence, and thus the STS 150/2013 of March 14, 2013, resolved in favor of the admissibility of separation at will – without just cause, with the only limit of respecting the requirements of good faith.

In any case, the right to separate requires agreement with the company, at least to determine the value of the shares, and the method of payment of their value, so that if there is no such agreement, we will be forced to go to court.

On the other hand, the separation of the partner, if it is verified through the transfer of the company shares, will have the same fiscal consequences, which we have indicated in the previous section, and if it is verified through a capital reduction, the separated partner will have to settle the corporate operations tax, for the value of what was received, and also if the amount of the refund exceeds the acquisition value of his shares, the excess is taxed as income from movable capital (“RCM”) not subject to withholding tax and is integrated into the 100% in the taxable savings base.

Finally, the company that reduces capital, in the event that the payment of the separated partner's share is made with assets other than money, must include in its corporate tax base the difference between the normal market value of the transferred elements and their book value.

c.- THE WAIVER OR ABANDONMENT OF SHAREHOLDERS.

Resigning from the status of partner would be a third way to leave the company, not regulated by the law on capital companies, which differs from the previous ones in that we would not need the consent of the other partners, but at the same time we would renounce any possible contributions made.

The waiver of the status of partner derives from the essentially renunciable nature of the rights, which is recognized by article 6.2 of the Civil Code when it states that “the voluntary exclusion of the applicable law and the waiver of the rights recognized therein will only be valid when they do not contradict the interest or public order or harm third parties.”

However, the Civil Code does not contain a general regulation of the methods of loss of property rights and, in particular, it does not regulate the requirements and effects of the renunciation of ownership and does not even refer to its possibility, unlike the law of Catalonia, which does deal with this matter in articles 543.1 and 543.2 of Book V of the Civil Code of Catalonia, stating: “Ownership is extinguished by renunciation of the owners if, in addition, they abandon possession of the thing that is the object of it” and “The will to abandon must be express and is not presumed by mere dispossession”.

Since the transfer of shares is not registered in the commercial register, there are no resolutions of the General Directorate that deal with this specific matter, but we do find cases in which the waiver of property rights, in whole or in shares, or of timeshare rights on real estate has been dealt with, such as the DGRN Resolutions of 30 August 2013 and 21 October 2014, and this matter has also been dealt with by the resolution of 19 July 2012 of the General Directorate of Law and Legal Entities of Catalonia.

Since the partner's right over his shares is a property right, many of the arguments of the previous resolutions on the renunciation of real estate could be transferable to the renunciation of these.

The renunciation of shareholdings can be described through the content of the partner status.

Pursuant to Article 93 of the Capital Companies Act, the shareholder shall have, as a minimum, the following rights:

A.- The right to participate in the distribution of corporate profits and in the assets resulting from the liquidation. B.- The right to preferential assumption in the creation of new participations or the right to preferential subscription in the issue of new shares or bonds convertible into shares. c) The right to attend and vote in general meetings and to challenge corporate agreements. d) The right to information.

If the powers that comprise the status of partner can be individually waived, in principle, there should be no obstacle to a global waiver..

Regarding the possibility of resignation, you would highlight two issues:

a) the effects of the resignation;

b) the requirements for resignation, specifically whether the consent of the other partners is necessary.

1.- The effects of resignation

Regarding the effects of renunciation, in general, it is necessary to differentiate between movable property, which becomes res nullius or abandoned things, susceptible to being acquired by occupation by a third party (article 610 of the Civil Code), and real estate which, as vacant and ownerless property (bienes mostrencos), would, ex lege, become the property of the State (article 17 of Law 33/2003, of November 3, on the Assets of Public Administrations).

Shares are movable property, but in my opinion, the renunciation of them does not generate its conversion into res nullius, but it seems more reasonable to me to equate it with an act of renunciation of a share in condominium (on the social assets), which has as a consequence, specifically regulated in the law of Catalonia in section 2 of article 552.5 of Book IV of the Civil Code of Catalonia, which indicates that the increase of the other co-owners (partners) in proportion to their rights without the need for express acceptance, but without prejudice to being able to renounce them.

Another option would be to consider it as a case of treasury stock through the acquisition of shares free of charge, but the consequences would actually be very similar.

That is to say, in the context of a limited company, the resignation of a partner implies that his or her shares are distributed among the other partners, who maintain the same shareholding.

In the field of common law, this matter is only touched upon in passing in article 395 CC, which provides for the duty of the co-owner to contribute with the others to the costs of maintaining the common property, establishing that he may be released from this burden by “renouncing the part that belongs to him in the domain”, but does not deal with the consequences of this renunciation. Doctrinally, this issue has been debated, with some authors in favour of accretion and others against, although the DGRyN has shown itself to be in favour of accretion (Resolution of 2 February 1960).

2.- The requirements for resignation

Regarding the requirements for resignation, in addition to the will of the person resigning, it has been discussed whether the consent of the other co-owners, partners in the case of a limited company, is necessary.

The DGRN Resolution of August 30, 2013 required a double requirement for the registration of the renunciation of the private premises: notification to the other owners and the secretary of the community and the consent of the former.

Regardless of whether or not the substance is correct, since there are those who criticize this resolution, we must start from the fact that it deals with the issue of registration of the resignation in the Property Registry, and on its conformity with the registry principles, therefore all its arguments are not transferable to the area of social shares, where in my opinion the mere notification to the company would be sufficient, so that it can make the resignation known to the rest of the partners, by application of article 1705 of the Civil Code, relative to the extinction of the civil society by unilateral denunciation of a partner.

3.- What happens if the other partners do not accept the resignation?

In the aforementioned resolution of August 30, 2013, the DGRN indicated that if the person renouncing the right did not obtain consent or if there was opposition from the other owners, he should go to court to issue a ruling declaring the renunciation legitimate, and thus obtain a title sufficient for registration.

With this, it seems to transform the waiver into a contractual act, which may be subject to criticism, but it must be taken into account that for the waiver to have all its effects, in the waiving party, something more than his will to waive is required, since there are accessory obligations that must be fulfilled by the company, so that the waiving party appears to be released from all the effects of the company, such as tax effects.

4.- A tax consideration.

It is a thorny issue, but in my opinion the waiver would generate a taxable event in the gift tax, with the beneficiary of the waiver being the taxpayer, so it would not be covered by the exemption of the current article 314 LMV. In fact, this tax consequence is for me one of the arguments for the necessary notification to the company, and for not producing a taxable event without the knowledge of the taxpayer, although I must recognize that it is a more theoretical than practical issue, due to the limited economic interests that are usually revealed in these waivers.

In Lleida on September 19, 2016

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