Under Spanish law, a person (natural or legal) ceases to form part of joint stock companies (“JSC”) (listed or unlisted), or limited liability companies (“LLC”) when such person ceases to hold stakes in the share capital. In practice, this dissociation generally occurs through the sale of shares/ stakes.

Notwithstanding the above, Spanish legislation provides for two additional ways in which such dissociation between a partner and a company can occur: separation or exit right (right of the partner) and exclusion right (right of the company).

These rights can be exercised when the legally established cases concur. In this sense, among other legally established causes for exercising the exit right are: voting against agreements on replacement or amendment of the corporate purpose, extension, reactivation or creation, modification or early termination of ancillary benefits.

The legislation contains causes for exclusion only for LLC, given the personalistic nature of this type of companies, regarding those partners who voluntarily fail to provide ancillary services, or have infringed, as administrator / director, the prohibition set out in the non-competition provision or have been sentenced, by final judgment, to compensate the company.

Notwithstanding the above, JSC and LLC by-laws may establish other causes concerning the exit and /or exclusion of a partner, always with the consent of all partners, including the form of accreditation, exercise and term.

In order for the separation or exclusion of a partner to take place, the general meeting of shareholders must agree to adopt the agreement and a written communication be sent to all partners who voted against the decision.

In particular, regarding the exercise of the right of exclusion any partner who voted in favour of the exclusion may exercise it on behalf of the company if the latter has not already done so within 1 month of the decision.

The fair value of the shares/stakes shall be determined by agreement between the partner and the company, or be fixed by a third party (an appraiser) designated by both parties. If there is no agreement, the valuation shall be made by an external auditor, designated by the Commercial Register of the company’s registered office (except JSC listed shares, where the value shall be the average listing price for the last quarter).

In cases where the valuation of the shares/stakes is carried out by an external auditor, the auditor shall notify the report containing the valuation of the shares/ stakes, to the company, the partners concerned and the Commercial Register, in the legally established period. In these cases, the partners concerned (outgoing partners for the exercise of the exit right or for the exercise of the right of exclusion) are entitled to receive reimbursement of the value of their participation within the legally established period, this period may be extended (up to the legal maximum indicated) if the right to opposition is exercised by company creditors.

*Lowenstein Sandler thanks Cristina Vidal and Leticia Fernandez Diez of Ramon y Cajal Abogados for their contributions to this blog.