The register of shares

This article has been published in issue 1028 of Actualidad Jurídica Aranzadi (AJA). Subscribe via this link and you will receive a notification with each new issue, allowing you to access the magazine at Legalteca.

Last February, the Council of Ministers approved the Draft Organic Law on Public Integrity (the “Draft”), thereby taking a decisive step towards the implementation of this first national anti-corruption strategy, inspired by the recommendations made by the OECD and the European Commission. Among the numerous reforms it proposes, one stands out for its immediate practical impact on commercial transactions: the reform affecting the regime for the transfer of shares in limited liability companies, namely, the requirement that such transfers be registered in the Commercial Register.

A reform aimed at transparency

The aim of this reform is to tackle the current lack of transparency regarding share ownership and to restore the public register that was abolished in the 1989 reform, when this ownership was relegated to the Register of Partners, a private document managed by the company's board of directors, with no public access and lacking any authenticity or public oversight. The draft of the bill indicates that, due to the private nature of the Register of Partners, it is a document that can be altered and is not effective against third parties.

For this purpose, the Bill amends articles 18 and 22 of the Commercial Code and introduces the creation of a special section in the Commercial Register, separate from the general register of the company, in which both the original ownership of the shares and their successive transfers must be registered, as well as the creation of real rights, encumbrance registrations, and any other charges, including non-possessory guarantees. The reform grants a constitutive nature to this register: until it is carried out, the acquirer will not be able to exercise political or economic rights against the company or third parties, and the payment of dividends will only have liberatory effect if made in favor of the registered owner.

Impact on corporate practice and new obligations

Regarding the impact on daily corporate and transactional practice, the reform introduces substantial changes. Firstly, share transfers can be documented through a standardized electronic private document, approved by the Directorate General for Legal Security and Public Trust, signed with qualified electronic signature by the transferor and the acquirer, and processed electronically through the electronic portal of the Association of Registrars.

Secondly, the Register of Partners must be maintained in electronic format and must be submitted annually to the Commercial Register, including the identification of the beneficial owners in accordance with anti-money laundering regulations. The directors will be responsible for ensuring the timely registration and will be personally liable to the partners and creditors for any damage resulting from unjustified delay. Additionally, annexes can be directly registered with the Register once the shares have been registered, which streamlines enforcement procedures. Existing companies will have one year from the entry into force of the regulation to register their Register of Partners, with the threat of closure of the register and even mandatory dissolution in case of non-compliance.

Challenges and practical risks for commercial transactions

Despite being ambitious and aligned with European standards of corporate transparency, the reform raises significant practical issues that the legislator must rigorously address during its parliamentary processing.

Firstly, the constitutive nature of the register requires a precise definition of whether the approval of the commercial registrar will be necessary and, if so, what its scope will be, as legal certainty of transactions will depend on this. It must be considered whether this constitutive nature does not alter the necessary balance between legal certainty and efficiency in commercial transactions. This registration requirement introduces a double verification of legality that, in light of what happens in other commercial transactions, constitutes an impediment to commercial transactions.

Secondly, it is essential to determine the registration deadlines and the aspects on which the registrar's assessment will focus, as the inability to exercise rights until registration has occurred will require a reconfiguration of standard contractual procedures: it must be considered whether it is necessary to include precedent conditions preventing the payment of the purchase price until the registration has effectively occurred, with the consequent impact on the efficiency of commercial transactions. We are facing a new potential obstacle in the system that complicates the current system of sufficiency of the ownership registration in the Register of Partners.

Thirdly, the model of a standardized electronic private document with qualified electronic signature poses serious difficulties for foreign investors and shareholders who, as expected, will not have signature certificates recognized by the Spanish system, which could constitute a significant bureaucratic barrier to international investment and will require interoperability solutions that the Bill does not address in its current drafting. Furthermore, the peculiar nature of most share transfers makes the standardization of this type of private document challenging.

Finally, it is surprising that the Bill already imposes the obligation to annually present the Register of Partners in electronic format to the Commercial Register; if this information must be available to the registrar and the competent authorities, one might question why this mechanism is not sufficient to achieve the transparency objectives pursued, without the need to attribute constitutive effect to the individual registration of each transfer.

In summary, the Draft Bill opens a necessary debate on the modernization of the regime of Spanish corporate law, but its success will depend on whether these measures provide equivalent bureaucratic simplification and legal security, and do not become measures that obstruct commercial transactions and impose further difficulties and costs. The modernization of certain institutions such as notaries and public registers is necessary, but it must be evaluated whether a drastic change in the regulations, far from streamlining the Spanish corporate law regime, would be detrimental to the parties involved.

Read the full article by Álvaro Gallego, senior associate at ECIJA Madrid, here.