According to the Restated Text the main features of this type of company are the following:

Legal personality.
A company limited by shares is formed by means of a notarial instrument or public deed ("escritura"), which contains the memorandum and articles of association, entered into before a Spanish notary (State appointed lawyer who certifies all types of contracts). The "escritura" must be recorded at the Commercial Register having jurisdiction over the place where the company has its registered office; the "escritura" must be filed at the Commercial Register within two months following the date of its execution, otherwise the founders and directors shall be liable for any damage caused to the company. The company limited by shares shall only acquire a separate legal personality upon registration. Prior to registration the company shall be liable for those acts and contracts that are essential for its registration, for those carried out by the directors within the scope of the powers given to them for such interim period or for those carried out by special attorneys; otherwise the liability shall remain with those that signed the relevant contracts; once the company has been registered it shall be liable for the acts and contracts mentioned above and for those that are accepted by the company within three months following registration(6).

Liability.
The liability of the shareholders is limited to the value of the shares they agree to subscribe for. There may be some exceptions to this basic principle (eg, in the case of single member companies, as elaborated by case law).

Capital and shares of stock.
The minimum capital required to set up a company limited by shares in Spai is 10,000,000 pesetas(7). This requirement must be met by any company created fter the date of publication of Law 19/1989 (27 July 1989). Existing companies at that date were compelled to increase their capital up to at least that amount before 30 June 1992 if they wished to keep that corporate form. The capital must be fully subscribed for and at least 25% of each share paid up. The balance must be paid in the form and within the period of time set forth in the articles of association or agreed by the directors(8) . Contributions may be either in cash or in kind, including any rights that may have an economic value; personal work or services are not acceptable as contributions. Contributions in kind require a special report (including an evaluation) by independent experts. Evidence of cash contributions must be attached to the "escritura", ie, the memorandum and articles of association(9). The company's capital will be divided into shares which in turn may be evidenced by either certificates or book entry (the latter namely for Stock Exchange transactions); certificates may be either to bearer or registered although the registered form is compulsory in certain cases. Different classes and series of shares are permitted as well as the issue of shares for a premium although any premium must be paid in full upon subscription. Restrictions on the transferability of the shares are also allowed within certain limits(10). Non-voting stock is also allowed for a nominal amount not exceeding 50% of the paid up capital and it is to be remunerated with a minimum 5% preferential annual dividend(11). There are restrictions on companies owning their own stock and having "interlocking shareholdings". These may not exceed 10% and any excess should be reduced to the 10% limit via the reduction of the capital of the company(ies) concerned in the required proportions(12). The foregoing rules on "interlocking participation's" do not apply to those participation's between a subsidiary and the "dominant" (parent) company(13). As a general rule where the "dominant" company owns the majority of the voting rights(14).

Shareholders.
These rules apply to closely held companies. There are more extensive rules for companies wishing to offer their shares to the public. The minimum number of founding shareholders is three(15), although in practice a company limited by shares often functions thereafter with two or even one shareholder. This is not, as in other jurisdictions, a legal cause for dissolution and liquidation or for imposing unlimited liability on the single shareholder. As mentioned above, how ever, there exists case law concerning single member companies whose single shareholder may find himself personally liable for the company's obligations. In any event, the absence of at least two real (not nominees) founding shareholders may give cause of action to nullify the company(16). The shareholders may be either individuals or legal entities, Spanish or foreign, the latter being subject to the limits and requirements established by the foreign investments legislation (see below). The company's affairs are conducted by the shareholders in meeting.
The daily management of the company is carried out by the directors (there are several forms: Board of Directors, single Director, etc., as seen below). Meetings of shareholders may be ordinary or special (extraordinary). The ordinary meeting shall be held annually within six months following the end of the company's accounting year in order to examine the company's management, approve the annual management report and accounts (the latter include a balance sheet, a profit and loss account and a Directors' report) and resolve about the application of the year's profits. As a general rule, at least 15 days notice of the meetings shall be given on the Commercial Register Official Bulletin and one newspaper of wide circulation of the county where the company has its registered office. No notice is required if all the shareholders are present and resolve to hold the meeting. Unless the articles of association of the company require higher quorums and majorities, for ordinary matters the attendance of shareholders representing at least 25% of the voting stock shall be required for the general meeting to proceed to business after being convened for the first time. If said quorum is not present the general meeting shall stand adjourned and the attendance of any part of the voting stock shall be sufficient for the general meeting to proceed to business after being convened for the second time. For special matters such as the issue of securities, the increase or reduction of the share capital, the transformation, merger or division of the company and generally the amendment of the articles of association and unless the articles of association of the company require higher quorums and majorities, the attendance of shareholders representing at least 50% of the voting stock shall be required for the general meeting to proceed to business after being convened for the first time. If said quorum is not present the general meeting shall stand adjourned and the attendance of 25% of the voting stock shall be required for the general meeting to proceed to business after being convened for the second time. A simple majority shall be sufficient to pass resolutions. In the case of meetings transacting special matters and which are attended by shareholders representing less than 50% of the voting stock, a majority of at least two thirds of the voting stock attending the meeting shall be required. The shareholders may be represented at shareholders' meetings by any other person even if such person is not a shareholder although the articles of association may impose limits to this right.

Directors.
The management of the company limited by shares may be entrusted either to one or various Directors, who can act jointly or separately. Should such management be entrusted collectively to more than two persons, either individuals or legal entities, a Board of Directors shall be formed (in the case of a Board the minimum number of directors is three). It is not necessary to be a shareholder in order to be a Director, nor is it, in broad terms, necessary to be a resident in Spain or of Spanish nationality. The directors represent the company. They shall be empowered to carry out any and all acts included in the corporate object. Any limitation shall be deemed void vis-à-vis third parties. The company shall be bound by acts entered into by the Directors with third parties even if the act in question was not included in the registered corporate object provided that the third parties acted in good faith and without gross negligence. The directors shall be liable to the company, the shareholders and the company's creditors for any damage they may cause, for any actions that are contrary to the law or the Articles of Association or for those actions carried out without the diligence with which they are required to perform their job. All the members of the Board that carried out or passed an unlawful action or resolution shall be jointly and severally liable, except those that prove that did not participate in the approval and implementation of the action or resolution and further ignored its existence, or that being aware of it, did all that was in their power to prevent the damage or at least opposed it explicitly.

Accounts.
The Company's accounts must be audited and consolidated under certain circumstances. Exceptions:
1) An audit is not required whenever the company concerned is allowed to draw up an abbreviated balance sheet and this is the case if during two consecutive years at least two of the following circumstances apply: (i) assets do not exceed 230,000,000 pesetas, (ii) annual revenue is less than 480,000,000 pesetas, (iii) the average number of employees does not exceed 50 during the accounting year(17).
2) The consolidation of accounts is not required either if: (a) the group of companies concerned does not exceed any two of the limits provided in the Restated Text for preparing an abbreviated profit and loss account: (i) assets do not exceed 920,000,000 pesetas, (ii) annual revenue is less than 1,920,000,000 pesetas, (iii) the average number of employees does not exceed 250 during the accounting year(18),provided that any of the companies of the group has not issued securities which are listed on the stock market; or (b) the Spanish parent belongs in turn to a company established in any of the EC countries if the latter wholly owns the former's equity or if owning 90% or more the minority shareholders agree to waive the consolidation of accounts; the foregoing is subject to certain requirements(19).

Special requirements.
The incorporation must be advertised in the Commercial Register Official Bulletin; an independent expert's report and the filing of such report at the Commercial Register is required for contributions in kind; any acquisitions of assets for consideration within two years following incorporation require reports from the directors and an independent expert and must be approved by the shareholders; any proposed capital increases must be preceded by a report of the directors; the capital increase(s) must be advertised in the Commercial Register Official Bulletin.

Mergers and divisions.

Mergers.
1.1)Types of merger and effects. There are essentially two types of merger: (i) where the merged companies form a new company to which, after the winding up of the former companies, their assets and undertakings are transferred as a whole, and (ii) where an existing company acquires the assets and undertakings of one or more companies which then are wound up(20). The main effects are:
i) all of the assets and liabilities of the transferor(s) are transferred as a whole to the transferee;
ii) the transferor(s) is/are then wound up (ie, dissolved or extinguished without being liquidated since the shareholders of the transferor(s) become shareholders of the transferee);
iii) as a consequence of the capital increase that will take place in the transferee after the transfer of the assets and liabilities of the transferor(s), the shareholders of the transferor(s) will participate in the transferee receiving a number of shares which is proportional to their respective participation's in the assets which are transferred to the transferee.
iv) the transferee is the lawful successor to all of the property, rights and obligations of the transferor(s). Accordingly, the transferee is subrogated to all of the rights and obligations of the transferor(s). For example, vis-à-vis their employees, the principle being the continuity of the employment contracts(21). Therefore all relevant rights, namely seniority, must be recognised by the new employer, ie, the transferee.

1.2) Procedure.
The directors of the companies involved in the merger -both the transferee and the transferor(s)- are required to prepare a merger project. The directors of these companies must refrain from carrying out any kind of act or concluding any contract that could jeopardise the approval of the merger project or substantially modify the share exchange ratio. The merger project will be void should it not be approved by the general meetings of the shareholders of the companies involved in the merger within six months of the date thereof(22).The merger project should contain at least the following information:
i) the name and registered office of the companies involved in the merger including their registration data at the Commercial Register;
ii) the share exchange ratio which will be established on the basis of the "real value" of the companies' assets. There may be supplementary compensations in cash to round up figures (maximum 10%).
iii) the procedure for the exchange of the shares of the companies to be wound up; the date as from which the new shares shall participate in the company's profits and any relevant peculiarities with regard to this right;
iv) rights to be given in the transferee to holders of shares belonging to special classes, if any, or to those that have "special rights" other than shares in the companies to be wound up;
v) the date as from which the operations of the companies to be wound up shall be deemed made for accounting purposes for the account of the transferee;
vi) any remuneration or other privileges to be given by the transferee to the independent experts participating in the merger project and to the directors of the companies involved in the merger. The merger requires two main reports:
i) one or more independent experts must be brought in by the directors of the companies involved in the merger to examine the merger project and the assets to be transferred by the companies to be wound up. The expert(s) should issue separate reports unless the Commercial Registrar, upon request of the directors of all the companies involved in the merger, designates one or more experts allowing him/them to elaborate one single report only. Special reference should be made in the report to whether or not the share exchange ratio is justified;
ii) the directors of each one of the companies involved in the merger must draw up written reports explaining and justifying the merger project and setting out the legal and economic grounds for it, with special reference to the share exchange ratio.
The directors are required to file the merger project at the Commercial Register having jurisdiction over each of the companies involved in the merger. After the Registrar examines the merger project and finds it legally acceptable, it is published in the Commercial Register Official Bulletin. The general meetings of the shareholders may not be convened prior to the effective filing of the merger project.
Adequate information has to be provided to the shareholders, as follows:
i) The notice convening the general meetings of the shareholders shall inform the shareholders, bondholders and holders of rights other than shares, and employees as well, of their right to examine at the Company's premises the merger project and other related documents: the independent expert(s) report(s) on the merger project; the directors' reports on the merger project; the accounts and management reports for the last three financial years, along with the relevant auditors' reports if required; the balance sheets for the merger of each one of the companies involved in the merger should they differ from the latest balance sheet approved by the shareholders general meeting together with the auditors' report if required; the draft amendments to the articles of association of the transferee; current articles of association of the companies involved in the merger; full names and age if individuals and the corporate name if companies and in both cases nationality and domicile of the directors of the companies involved in the merger and the date of their appointments; as applicable the same data concerning the proposed directors after the merger;
ii) The directors of the transferor(s) must inform the shareholders general meeting of the respective companies and the directors of the transferee, so that these may advise their shareholders, about any "important" change in the transferor(s)' assets or liabilities between the date the merger project was drawn up and the date of the general meeting at which the merger is to be discussed. The same information must be given by the directors of the transferee to the directors of the transferor(s) so that they may advise their shareholders.

1.3) The merger balance sheet.
The latest balance sheet approved may be regarded as the merger balance sheet provided that it has been closed within six months prior to the meeting at which the merger is to be discussed. Otherwise a new balance sheet should be prepared as at the first day of the third month preceding the merger project(23). The values stated in such balance (s) may be adjusted taking into account those important modifications in the market values that have not been reflected in the accounting entries.

1.4) The merger resolution.
The merger must be approved by the general meetings of the shareholders of each of the companies involved subject to the terms of the merger project(24). Contrary to the general regime, the notice convening the meetings should be published at least one month before the date of the relevant meetings. It will include the minimal contents of the merger project and will inform the shareholders, bondholders and holders of rights other than shares about their right to inspect the documents listed above at the Companies' premises and to obtain a copy thereof. Special quorum and majorities are required for the approval of mergers (see section d.). The resolution approving the merger must be published three times in the Commercial Register Official Bulletin and in two newspapers of wide circulation in the provinces where the companies have their registered offices. The right of the shareholders and creditors to obtain the full text of the resolution and of the merger balance sheet must be stated in the publication.

1.5) Right to oppose.
Generally, any creditor of the companies involved in the merger has the right to oppose the merger until repayment is fully secured(25).

1.6) Separation Rights.
Shareholders disapproving the merger do not have the right to separate and withdraw from the company.

2) Divisions.
There are two types of division: (i) where the assets and undertakings of a company, which is wound up, are divided in two or more parts that are transferred as a whole to a new company or are acquired by an existing company, and (ii) where the assets and undertakings of a company, which is not wound up, are divided in one or several parts that are transferred as a whole to one or more new companies or to an existing company(26). Generally, the rules on mergers apply to divisions.

3) Taxation.
Companies wishing to merge or divide may have rollover relief. This allows companies to defer taxation of capital gains. For tax purposes only the assets are deemed to be transferred at book value (without any revaluations) in such a way that any taxation is deferred until such time in which the absorbing or acquiring company disposes of those assets. At that moment the capital gains made upon the disposition are taxed. The referential purchase cost to establish the relevant capital gain will be the book value in which the assets were transferred to the absorbing company. Companies wishing to have rollover relief are only required to notify such intention to the Tax Authorities, however they may also waive this relief(28). Indeed Companies wishing to merge may also waive the rollover relief in which case any capital gains made upon the merger would be added to the taxable base and taxed accordingly under the Corporate Tax. This option may be attractive in the event the Company has, for instance, losses which could be offset against the capital gains. In this case the Company would normally revalued its assets but to prevent unjustified revaluations the resulting real value may not exceed one limit: the market value. As to the shareholders the capital gain arising from the exchange of shares is defined by the difference between the "real value" of the shares received and the book value or the acquisition cost of those surrendered, but similarly to companies the capital gain is rolled over indefinitely by incorporating the shares to the shareholder's portfolio at the same value that those surrendered in exchange for the new one(29).Specifically in the case of non-resident shareholders the allocation of shares in the merged Company might not be subject to taxation in Spain but if applicable in their country of residence should there be a Double Taxation Convention between Spain and the relevant country.

(6) Article 15 of the Restated Text.
(7) Article 4 of the Restated Text.
(8) Articles 12 and 42 of the Restated Text.
(9) Articles 36 through 41 of the Restated Text.
(10) Articles 47 and 63 of the Restated Text.
(11) Article 90 of the Restated Text.
(12) Articles 82 through 89 of the Restated Text.
(13) Article 85 of the Restated Text.
(14) Article 87 of the Restated Text and article 42 of the Code of Commerce as amended by Law 19/1989.
(15) Article 14.1 of the Restated Text.
(16) Article 34.1 d) of the Restated Text.
(17) Articles 181 and 203 of the Restated Text.
(18) Article 190 of the Restated Text.
(19) Article 43 of the Code of Commerce, as amended by Law 18/1989.
(20) Article 233 of the Restated Text.
(21) Article 44 of the Workers Statute.
(22) Article 234 of the Restated Text.
(23) Article 239 of the Restated Text.
(24) Article 240 of the Restated Text.
(25) Article 243 of the Restated Text.
(26) Article 252 of the Restated Text.
(27) Title I of Law 29/1991 of 16 December (published on 17 December) which incorporated into the Spanish law the provisions of the EC Council's Merger Directive 90/434/EEC of 23 July 1990.
(28) Articles 16 and 4.2 Law 29/1991.
(29) Articles 7 and 9 Law 29/1991.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstance.

For further information contact Mr. Jorge Angell, L. C. Rodrigo Abogados, Madrid (Spain) Fax: (34 1) 576 67 16 / 578 07 41.