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The  director of a limited liability company proposed at its General Shareholder’s Meeting that the profits gained should be  allocated entirely to voluntary reserves. The proposal was approved with only one vote against from a partner (shareholder) who proposed that the distribution of the totality of the profits, plus half of the voluntary reserves be put to a vote. The partner (shareholder) notified the company of the exercise of her right of separation in accordance with article 348 bis of the Capital Companies Act (Ley de Sociedades de Capital – “LSC”), and in the notification she requested the summons of the meeting with the object of proceeding with the negotiation on the value of the participations (shares). The partner reiterated the notification of the exercise of the right of separation and made a proposal on the evaluation of her participations (shares) in the company, warning that if no reply was received she would continue with the procedure established in the LSC.

The director of the company opposed the claim of the partner, however, the registrar of the commercial registry issued a decision whereby it deemed the opposition inadmissible and proceeded with the appointment of the expert, as requested, in order to determine the reasonable value of the participations (shares) in accordance with article 363 of the Commercial Registry Regulation.

The company filed opposition before the General Directorate of Registries and Notaries (Dirección General de Registros y Notariado  – “DGRN”) against said resolution.

In its resolution dated 13th March 2018, the DGRN divided the allegations of the company into three main arguments:

(1)   It is up to the commercial court judge and not the registrar of the commercial registry to decide upon whether the right of separation is applicable.

(2)   The general meeting has not decided on the right of separation.

(3)   The company has serious doubts on the origin of the right of separation which has been exercised in fraud under the law.

Subsequently, the DGRN gave its opinion regarding said allegations for each of the arguments and finally rejected the appeal.

Amongst the allegations and regarding the need for a prior declaration from the general meeting, the DGRN mentioned that, as a  result of the case law doctrine of the Supreme Court regarding the exercise of the right of separation, such exercise depends exclusively upon the partner (shareholder) to whom the Law attributes the possibility to exercise the right. It is not necessary that a prior decision be made neither by the general meeting of the company or its administration organ. If the right has been exercised and the company duly notified thereof, its effects unfold under the terms of article 353 and the following articles of the LSC. In summary, the exercise of the right of separation is not conditioned to a decision or prior debate from the general meeting of the company and it does not depend at all on what the meeting decides.

Mika Otomo

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15th of June, 2018


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